Question 1

Suppose the money supply increases by 10 percent but velocity is not constant. Given this information, it follows that:

Accepted Answer

A) nominal GDP will increase by 10 percent. 
B) nominal GDP will increase by less than 10 percent. 
C) nominal GDP will increase by more than 10 percent. 
D) the change in nominal GDP cannot be determined. 
A) nominal GDP will increase by 10 percent. 
B) nominal GDP will increase by less than 10 percent. 
C) nominal GDP will increase by more than 10 percent. 
D) the change in nominal GDP cannot be determined.

Question 2

Unexpected inflation redistributes income from lenders to borrowers.Explain using an example.

Accepted Answer

Lenders and borrowers often enter into a

Question 3

One way to measure asset inflation is to:

Accepted Answer

A) multiply the GDP deflator times nominal net worth; if it increases, there is asset inflation. 
B) multiply the GDP deflator times real net worth; if it increases, there is asset inflation. 
C) divide GDP by nominal net worth; if it increases, there is asset inflation. 
D) divide nominal net worth by GDP; if it increases, there is asset inflation. 
A) multiply the GDP deflator times nominal net worth; if it increases, there is asset inflation. 
B) multiply the GDP deflator times real net worth; if it increases, there is asset inflation. 
C) divide GDP by nominal net worth; if it increases, there is asset inflation. 
D) divide nominal net worth by GDP; if it increases, there is asset inflation.

Question 4

If the economy is at Point A in the Phillips curve graph shown, in the long run, the unemployment would be expected to:

Accepted Answer

A) increase. 
B) decrease. 
C) remain constant. 
D) immediately fall to zero. 
A) increase. 
B) decrease. 
C) remain constant. 
D) immediately fall to zero.

Question 5

A reason why the quantity theory of money is problematic is that:

Accepted Answer

A) money supply increases generally affect only goods prices. 
B) the Fed generally runs expansionary monetary policy. 
C) the velocity of money has fluctuated over time. 
D) real output rises during expansions and falls during contractions. 
A) money supply increases generally affect only goods prices. 
B) the Fed generally runs expansionary monetary policy. 
C) the velocity of money has fluctuated over time. 
D) real output rises during expansions and falls during contractions.

Question 6

If inflation was 3 percent last year and 2 percent this year, an individual who follows extrapolative expectations would predict that the inflation rate for the coming year would be:

Accepted Answer

A) 0 percent. 
B) 1 percent. 
C) 3 percent. 
D) 5 percent. 
A) 0 percent. 
B) 1 percent. 
C) 3 percent. 
D) 5 percent.

Question 7

Economist's understanding of the costs and benefits of inflation differ from most lay people's understanding of the costs and benefits of inflation?

Accepted Answer

The "cost" that most lay people associat

Question 8

Inflation frees policy makers from:

Accepted Answer

A) the 2.5 percent interest rate lower bound. 
B) the 2.5 percent growth rate bound. 
C) the zero interest rate lower bound. 
D) the zero interest rate upper bound. 
A) the 2.5 percent interest rate lower bound. 
B) the 2.5 percent growth rate bound. 
C) the zero interest rate lower bound. 
D) the zero interest rate upper bound.

Question 9

The quantity theory of money implies that an increase in the money supply will ultimately:

Accepted Answer

A) increase the price level and leave real GDP unchanged. 
B) affect only the level of real GDP; the price level will remain unchanged. 
C) increase the price level and the level of real GDP. 
D) decrease the price level and the level of real GDP. 
A) increase the price level and leave real GDP unchanged. 
B) affect only the level of real GDP; the price level will remain unchanged. 
C) increase the price level and the level of real GDP. 
D) decrease the price level and the level of real GDP.

Question 10

Given the basic rule of thumb for the relationship among inflation, productivity and nominal wage increases, if wages rise by 5 percent and productivity increases 3 percent, one would predict inflation to be:

Accepted Answer

A) −1 percent. 
B) 0 percent. 
C) 1 percent. 
D) 2 percent. 
A) −1 percent. 
B) 0 percent. 
C) 1 percent. 
D) 2 percent.

Question 11

Refer to the graph shown. If expected inflation is 6 percent, the economy will be in long-run equilibrium at point:

Accepted Answer

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

Question 12

Inflationary expectations are important, because widespread changes in inflationary expectations affect:

Accepted Answer

A) the distribution of income. 
B) relative prices. 
C) actual inflation. 
D) Okun's rule of thumb. 
A) the distribution of income. 
B) relative prices. 
C) actual inflation. 
D) Okun's rule of thumb.

Question 13

Explain how institutionally-focused economists use the price-setting process of firms to explain inflation.

Accepted Answer

The institutionally-focused economists a

Question 14

How has globalization changed the nature of the inflation problem faced by the U.S.?

Accepted Answer

Globalization changed the nature of the

Question 15

Explain how policymakers use changes in productivity and wages to predict inflation.

Accepted Answer

Changes in both productivity and wages s

Question 16

Which of the following remains constant along the short-run Phillips curve?

Accepted Answer

A) Unemployment 
B) Inflationary expectations 
C) Inflation 
D) Output 
A) Unemployment 
B) Inflationary expectations 
C) Inflation 
D) Output

Question 17

A central policy concern about inflation is to see that it:

Accepted Answer

A) does not become built into expectations. 
B) does not redistribute income. 
C) does redistribute income. 
D) does become built into expectations. 
A) does not become built into expectations. 
B) does not redistribute income. 
C) does redistribute income. 
D) does become built into expectations.

Question 18

Globalization will tend to:

Accepted Answer

A) flatten the short-run Phillips curve. 
B) flatten the long-run Phillips curve. 
C) shift the short-run Phillips curve. 
D) shift the long-run Phillips curve. 
A) flatten the short-run Phillips curve. 
B) flatten the long-run Phillips curve. 
C) shift the short-run Phillips curve. 
D) shift the long-run Phillips curve.

Question 19

Briefly describe three different ways that people form expectations of inflation.

Accepted Answer

Three different ways that people form ex

Question 20

How does the short-run Phillips curve differ from the long-run Phillips curve? At what level of unemployment will the two curves intersect?

Accepted Answer

The short-run Phillips curve is a downwa

Exam 34: Inflation, Deflation, and Macro Policy

Suppose the money supply increases by 10 percent but velocity is not constant. Given this information, it follows that:

Unexpected inflation redistributes income from lenders to borrowers.Explain using an example.

One way to measure asset inflation is to:

If the economy is at Point A in the Phillips curve graph shown, in the long run, the unemployment would be expected to:

A reason why the quantity theory of money is problematic is that:

If inflation was 3 percent last year and 2 percent this year, an individual who follows extrapolative expectations would predict that the inflation rate for the coming year would be:

Economist's understanding of the costs and benefits of inflation differ from most lay people's understanding of the costs and benefits of inflation?

Inflation frees policy makers from:

The quantity theory of money implies that an increase in the money supply will ultimately:

Given the basic rule of thumb for the relationship among inflation, productivity and nominal wage increases, if wages rise by 5 percent and productivity increases 3 percent, one would predict inflation to be:

Refer to the graph shown. If expected inflation is 6 percent, the economy will be in long-run equilibrium at point:

Inflationary expectations are important, because widespread changes in inflationary expectations affect:

Explain how institutionally-focused economists use the price-setting process of firms to explain inflation.

How has globalization changed the nature of the inflation problem faced by the U.S.?

Explain how policymakers use changes in productivity and wages to predict inflation.

Which of the following remains constant along the short-run Phillips curve?

A central policy concern about inflation is to see that it:

Globalization will tend to:

Briefly describe three different ways that people form expectations of inflation.

How does the short-run Phillips curve differ from the long-run Phillips curve? At what level of unemployment will the two curves intersect?

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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