Question 1

Refer to the graph shown.   Which of the graphs correctly depict the short-run Phillips curve in the standard model, without trade?

Accepted Answer

A) A 
B) B 
C) C 
D) D 
A) A 
B) B 
C) C 
D) D

Question 2

In Zimbabwe, inflation rose from an annual rate of 32 percent in 1998 to 100,000 percent in early 2009. Considering only the effects of this unexpected inflation, which of the following groups are helped by the inflation:

Accepted Answer

A) Debtors 
B) People living on fixed pensions 
C) Unemployed people 
D) No one; inflation hurts everyone 
A) Debtors 
B) People living on fixed pensions 
C) Unemployed people 
D) No one; inflation hurts everyone

Question 3

Suppose a country has a velocity of money equal to 12 and a nominal GDP of $30 billion. This means that each dollar in this economy is supporting approximately:

Accepted Answer

A) $10 in total income. 
B) $30 in total income. 
C) $1.5 in total income. 
D) $12 in total income. 
A) $10 in total income. 
B) $30 in total income. 
C) $1.5 in total income. 
D) $12 in total income.

Question 4

Policy makers:

Accepted Answer

A) like inflation because it allows individuals to maintain illusions. 
B) dislike inflation because it allows individuals to maintain illusions. 
C) like inflation because it makes society richer. 
D) dislike inflation because it redistributes income. 
A) like inflation because it allows individuals to maintain illusions. 
B) dislike inflation because it allows individuals to maintain illusions. 
C) like inflation because it makes society richer. 
D) dislike inflation because it redistributes income.

Question 5

If the money stock grows by 13 percent, and during that same time nominal GDP grows by 3.3 percent, what can we deduce happens to velocity during this period?

Accepted Answer

A) We cannot tell without knowing what happened to prices. 
B) It remained constant. 
C) It rose. 
D) It fell. 
A) We cannot tell without knowing what happened to prices. 
B) It remained constant. 
C) It rose. 
D) It fell.

Question 6

In Zimbabwe, inflation rose from an annual rate of 32 percent in 1998 to 100,000 percent in early 2009. Considering only the effects of this unexpected inflation, which of the following is most harmed by the inflation?

Accepted Answer

A) Businesses with large inventories 
B) Businesses with large debts 
C) Businesses with wages determined by long-term contracts 
D) Businesses who had contracted to sell their services to others at fixed prices 
A) Businesses with large inventories 
B) Businesses with large debts 
C) Businesses with wages determined by long-term contracts 
D) Businesses who had contracted to sell their services to others at fixed prices

Question 7

Unemployment will be at its target rate when actual inflation is:

Accepted Answer

A) 3 percent and expected inflation is 3 percent. 
B) 3 percent and expected inflation is 0 percent. 
C) 0 percent and expected inflation is 3 percent. 
D) 6 percent and expected inflation is 3 percent. 
A) 3 percent and expected inflation is 3 percent. 
B) 3 percent and expected inflation is 0 percent. 
C) 0 percent and expected inflation is 3 percent. 
D) 6 percent and expected inflation is 3 percent.

Question 8

Consider the following Phillips curve diagram:   Suppose an expansionary monetary policy has moved the economy from point A to point B.Is point B a long-run equilibrium? If yes,explain why.If no,explain how the economy will get to new long-run equilibrium.

Accepted Answer

Point B is not at long-run equilibrium b

Question 9

Assuming velocity is constant, the rate of inflation equals the difference between the rate of:

Accepted Answer

A) unemployment and the rate of economic growth. 
B) growth in the money supply and the rate of growth in nominal GDP. 
C) growth in real wages and the rate of growth in real GDP. 
D) growth in the money supply and the rate of growth in real GDP. 
A) unemployment and the rate of economic growth. 
B) growth in the money supply and the rate of growth in nominal GDP. 
C) growth in real wages and the rate of growth in real GDP. 
D) growth in the money supply and the rate of growth in real GDP.

Question 10

The short-run Phillips curve shifts around because of changes in:

Accepted Answer

A) the money supply. 
B) expectations of employment. 
C) expectations of inflation. 
D) expectations of real income. 
A) the money supply. 
B) expectations of employment. 
C) expectations of inflation. 
D) expectations of real income.

Question 11

How is the quantity theory of money related to the equation of exchange? What are the implications of the quantity theory for dealing with inflation? Why do economists who believe in the quantity theory advocate monetary growth rules?

Accepted Answer

The equation of exchange says that the q

Question 12

According to the quantity theory of money, inflation is attributable to increases in:

Accepted Answer

A) velocity. 
B) real GDP. 
C) velocity in excess of increases in real GDP. 
D) the money supply in excess of increases in real GDP. 
A) velocity. 
B) real GDP. 
C) velocity in excess of increases in real GDP. 
D) the money supply in excess of increases in real GDP.

Question 13

The quantity theory of money:

Accepted Answer

A) does not explain inflation in the real world at all. 
B) explains low inflation rates well but does not explain high inflation rates well. 
C) explains high inflation rates well but does not explain low inflation rates well. 
D) provides a comprehensive explanation of inflation. 
A) does not explain inflation in the real world at all. 
B) explains low inflation rates well but does not explain high inflation rates well. 
C) explains high inflation rates well but does not explain low inflation rates well. 
D) provides a comprehensive explanation of inflation.

Question 14

Suppose that real output is fixed and equal to 400, while velocity is fixed and equal to 5. Then, if the money supply is equal to 200, the price level will be:

Accepted Answer

A) 2.5. 
B) 5. 
C) 7.5. 
D) 10. 
A) 2.5. 
B) 5. 
C) 7.5. 
D) 10.

Question 15

Currently, if inflation is 2 percent and the goods inflation target is 2.5 percent, policymakers:

Accepted Answer

A) congratulate themselves for coming in under their target. 
B) are unhappy because they have come in under their target. 
C) are indifferent because they don't have an inflation target. 
D) are indifferent because they are more interested in asset inflation. 
A) congratulate themselves for coming in under their target. 
B) are unhappy because they have come in under their target. 
C) are indifferent because they don't have an inflation target. 
D) are indifferent because they are more interested in asset inflation.

Question 16

Institutionally-focused economists argue:

Accepted Answer

A) the equation of exchange is incorrect. 
B) the equation of exchange should be read from right to left. 
C) the equation of exchange should be read from left to right. 
D) both the quantity theory and the equation of exchange are incorrect. 
A) the equation of exchange is incorrect. 
B) the equation of exchange should be read from right to left. 
C) the equation of exchange should be read from left to right. 
D) both the quantity theory and the equation of exchange are incorrect.

Question 17

If the economy is at point A in the Phillips curve shown, and the government runs expansionary monetary policy, what prediction would you make for inflation?

Accepted Answer

A) It will increase. 
B) It will decrease. 
C) It will remain constant. 
D) It will explode. 
A) It will increase. 
B) It will decrease. 
C) It will remain constant. 
D) It will explode.

Question 18

If actual inflation is correctly expected and built into people's wage and price-setting decisions, the Phillips curve:

Accepted Answer

A) becomes a horizontal line. 
B) becomes a vertical line. 
C) remains a downward sloping line. 
D) becomes an upward sloping line. 
A) becomes a horizontal line. 
B) becomes a vertical line. 
C) remains a downward sloping line. 
D) becomes an upward sloping line.

Question 19

The equation of exchange is expressed as:

Accepted Answer

A) MR = PQ. 
B) MV = PQ. 
C) MPP = P. 
D) MR = MC. 
A) MR = PQ. 
B) MV = PQ. 
C) MPP = P. 
D) MR = MC.

Question 20

Inflation redistributes income from people who do not raise their prices to people who do raise their prices.

Accepted Answer

A) True 
 B)False

Exam 34: Inflation, Deflation, and Macro Policy

Refer to the graph shown. Which of the graphs correctly depict the short-run Phillips curve in the standard model, without trade?

In Zimbabwe, inflation rose from an annual rate of 32 percent in 1998 to 100,000 percent in early 2009. Considering only the effects of this unexpected inflation, which of the following groups are helped by the inflation:

Suppose a country has a velocity of money equal to 12 and a nominal GDP of $30 billion. This means that each dollar in this economy is supporting approximately:

Policy makers:

If the money stock grows by 13 percent, and during that same time nominal GDP grows by 3.3 percent, what can we deduce happens to velocity during this period?

In Zimbabwe, inflation rose from an annual rate of 32 percent in 1998 to 100,000 percent in early 2009. Considering only the effects of this unexpected inflation, which of the following is most harmed by the inflation?

Unemployment will be at its target rate when actual inflation is:

Consider the following Phillips curve diagram: Suppose an expansionary monetary policy has moved the economy from point A to point B.Is point B a long-run equilibrium? If yes,explain why.If no,explain how the economy will get to new long-run equilibrium.

Assuming velocity is constant, the rate of inflation equals the difference between the rate of:

The short-run Phillips curve shifts around because of changes in:

How is the quantity theory of money related to the equation of exchange? What are the implications of the quantity theory for dealing with inflation? Why do economists who believe in the quantity theory advocate monetary growth rules?

According to the quantity theory of money, inflation is attributable to increases in:

The quantity theory of money:

Suppose that real output is fixed and equal to 400, while velocity is fixed and equal to 5. Then, if the money supply is equal to 200, the price level will be:

Currently, if inflation is 2 percent and the goods inflation target is 2.5 percent, policymakers:

Institutionally-focused economists argue:

If the economy is at point A in the Phillips curve shown, and the government runs expansionary monetary policy, what prediction would you make for inflation?

If actual inflation is correctly expected and built into people's wage and price-setting decisions, the Phillips curve:

The equation of exchange is expressed as:

Inflation redistributes income from people who do not raise their prices to people who do raise their prices.

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Describing Supply and Demand: Elasticities

Taxation and Government Intervention

Market Failure Versus Government Failure

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Production and Cost Analysis I

Production and Cost Analysis II

Perfect Competition

Monopoly and Monopolistic Competition

Oligopoly and Antitrust Policy

Real-World Competition and Technology

Work and the Labor Market

Who Gets What the Distribution of Income

The Logic of Individual Choice: the Foundation of Supply and Demand

Game Theory, Strategic Decision Making, and Behavioral Economics

Thinking Like a Modern Economist

Behavioral Economics and Modern Economic Policy

Microeconomic Policy, Economic Reasoning, and Beyond

Economic Growth, Business Cycles, and Unemployment

Measuring and Describing the Aggregate Economy

The Keynesian Short-Run Policy Model: Demand-Side Policies

The Classical Long-Run Policy Model: Growth and Supply-Side Policies

The Financial Sector and the Economy

Monetary Policy

Financial Crises, Panics, and Unconventional Monetary Policy

Deficits and Debt: the Austerity Debate

The Fiscal Policy Dilemma

Jobs and Unemployment

International Financial Policy

Macro Policy in a Global Setting

Structural Stagnation and Globalization

Macro Policy in Developing Countries

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