Question 1

According to the text, if individuals base their expectations on economic models, we say that their expectations are:

Accepted Answer

A) rational. 
B) historical. 
C) adaptive. 
D) extrapolative. 
A) rational. 
B) historical. 
C) adaptive. 
D) extrapolative.

Question 2

Asset price inflation occurs when the prices of assets rise.

Accepted Answer

A) True 
 B)False

Question 3

Explain how the quantity theory of money differs from the equation of exchange.

Accepted Answer

The equation of exchange is a tautology:

Question 4

Refer to the graph shown. Expectations of inflation are 2 percent at point(s):

Accepted Answer

A) A and C. 
B) B. 
C) D. 
D) B, C, and D. 
A) A and C. 
B) B. 
C) D. 
D) B, C, and D.

Question 5

Refer to the graph shown. Suppose an economy begins at point B but then adopts an expansionary monetary policy. In the short run, this policy would most likely:

Accepted Answer

A) reduce inflation to 3 percent and raise unemployment to 7.5 percent. 
B) reduce inflation to 3 percent and reduce unemployment to 4 percent. 
C) raise inflation to 9 percent and raise unemployment to 7.5 percent. 
D) raise inflation to 9 percent and reduce unemployment to 4 percent. 
A) reduce inflation to 3 percent and raise unemployment to 7.5 percent. 
B) reduce inflation to 3 percent and reduce unemployment to 4 percent. 
C) raise inflation to 9 percent and raise unemployment to 7.5 percent. 
D) raise inflation to 9 percent and reduce unemployment to 4 percent.

Question 6

In 1964 and 1970, unemployment was about 5 percent. Inflation in 1964, however, was 2 percent, while in 1970 it was over 5 percent. What might explain this difference?

Accepted Answer

A) Expansionary fiscal policy 
B) Expansionary monetary policy 
C) An increase in expected inflation 
D) An increase in labor productivity 
A) Expansionary fiscal policy 
B) Expansionary monetary policy 
C) An increase in expected inflation 
D) An increase in labor productivity

Question 7

If inflation increases unexpectedly, then:

Accepted Answer

A) borrowers tend to lose. 
B) lenders tend to lose. 
C) lenders and borrowers tend to gain. 
D) neither borrowers nor lenders tend to lose. 
A) borrowers tend to lose. 
B) lenders tend to lose. 
C) lenders and borrowers tend to gain. 
D) neither borrowers nor lenders tend to lose.

Question 8

Consider the following Phillips curve diagram:   (a)The economy is currently at point A with unemployment of 6% and inflation of 4%.The President has informed you that she is about to undertake an expansionary fiscal policy designed to lower unemployment from its current rate of 6% to 4%.She asks you what will happen in the economy as a result of her policy.Base your answer on the Phillips curve in the above diagram.
(b)How would your answer to (a)above change if you were to take into account potential changes in inflation expectations and their impact on actual inflation?

Accepted Answer

(a)You inform the President there exists

Question 9

Non-economists often say that inflation makes the nation poorer.Why are they incorrect? What are two actual costs of inflation? Explain your answer.

Accepted Answer

Whenever prices go up,the buyers are mad

Question 10

If the money supply is 500 and velocity is 6, then nominal GDP:

Accepted Answer

A) is 83.33. 
B) is 500. 
C) is 3,000. 
D) cannot be determined. 
A) is 83.33. 
B) is 500. 
C) is 3,000. 
D) cannot be determined.

Question 11

Given the basic rule of thumb for the relationship among inflation, productivity and nominal wage increases, if wages rise by 2 percent and productivity increases 1 percent, one would predict inflation to be:

Accepted Answer

A) 0 percent. 
B) 1 percent. 
C) 1.5 percent. 
D) 3 percent. 
A) 0 percent. 
B) 1 percent. 
C) 1.5 percent. 
D) 3 percent.

Question 12

If productivity growth is 2 percent and inflation is 5 percent, on average, nominal wage increases will be:

Accepted Answer

A) 2 percent. 
B) 3 percent. 
C) 5 percent. 
D) 7 percent. 
A) 2 percent. 
B) 3 percent. 
C) 5 percent. 
D) 7 percent.

Question 13

Stagflation is a combination of:

Accepted Answer

A) low and decelerating inflation and low unemployment. 
B) low and decelerating inflation and high unemployment. 
C) high and accelerating inflation and low unemployment. 
D) high and accelerating inflation and high unemployment. 
A) low and decelerating inflation and low unemployment. 
B) low and decelerating inflation and high unemployment. 
C) high and accelerating inflation and low unemployment. 
D) high and accelerating inflation and high unemployment.

Question 14

On the short-run Phillips curve, the expectations of inflation:

Accepted Answer

A) are rising. 
B) are falling. 
C) remain constant. 
D) are rising or falling depending on how the economy is performing. 
A) are rising. 
B) are falling. 
C) remain constant. 
D) are rising or falling depending on how the economy is performing.

Question 15

Refer to the graph shown. Expectations of inflation at point B are:

Accepted Answer

A) 1 percent. 
B) 2 percent. 
C) 3 percent. 
D) unknown. 
A) 1 percent. 
B) 2 percent. 
C) 3 percent. 
D) unknown.

Question 16

If the velocity of money is about 1.8 and nominal GDP is $14.4 trillion, what is the money supply?

Accepted Answer

A) $1.8 trillion 
B) $8.0 trillion 
C) $14.4 trillion 
D) We cannot compute the money supply from the data given. 
A) $1.8 trillion 
B) $8.0 trillion 
C) $14.4 trillion 
D) We cannot compute the money supply from the data given.

Question 17

Suppose the U.S. money supply increases from $7.6 trillion to $8.3 trillion. If there is zero real economic growth, and velocity stays constant, then according to the quantity theory of money, the U.S. inflation rate during this period would be:

Accepted Answer

A) 3 percent. 
B) 6 percent. 
C) 9 percent. 
D) 12 percent. 
A) 3 percent. 
B) 6 percent. 
C) 9 percent. 
D) 12 percent.

Question 18

If the velocity of money falls from 1.95 to 1.85, the decline in velocity implies that:

Accepted Answer

A) inflation increases. 
B) inflation decreases. 
C) the money stock grows faster than nominal GDP. 
D) the money stock grows more slowly than nominal GDP. 
A) inflation increases. 
B) inflation decreases. 
C) the money stock grows faster than nominal GDP. 
D) the money stock grows more slowly than nominal GDP.

Question 19

Using the AD/AS and the Phillips curve models,demonstrate graphically and explain in words the changes to output,unemployment and inflation caused by an expansionary fiscal policy.Show the short-run and long-run adjustments.Assume that the economy is initially in both short-run and long-run equilibrium,and that expected inflation is 2%.

Accepted Answer

The economy is initially in both short-r

Question 20

A basic rule of thumb to predict inflation is that it equals:

Accepted Answer

A) real wage increases minus productivity growth. 
B) productivity growth plus nominal wage increases. 
C) productivity growth minus nominal wage increases. 
D) nominal wage increases minus productivity growth. 
A) real wage increases minus productivity growth. 
B) productivity growth plus nominal wage increases. 
C) productivity growth minus nominal wage increases. 
D) nominal wage increases minus productivity growth.

Exam 34: Inflation, Deflation, and Macro Policy

According to the text, if individuals base their expectations on economic models, we say that their expectations are:

Asset price inflation occurs when the prices of assets rise.

Explain how the quantity theory of money differs from the equation of exchange.

Refer to the graph shown. Expectations of inflation are 2 percent at point(s):

Refer to the graph shown. Suppose an economy begins at point B but then adopts an expansionary monetary policy. In the short run, this policy would most likely:

In 1964 and 1970, unemployment was about 5 percent. Inflation in 1964, however, was 2 percent, while in 1970 it was over 5 percent. What might explain this difference?

If inflation increases unexpectedly, then:

Non-economists often say that inflation makes the nation poorer.Why are they incorrect? What are two actual costs of inflation? Explain your answer.

If the money supply is 500 and velocity is 6, then nominal GDP:

Given the basic rule of thumb for the relationship among inflation, productivity and nominal wage increases, if wages rise by 2 percent and productivity increases 1 percent, one would predict inflation to be:

If productivity growth is 2 percent and inflation is 5 percent, on average, nominal wage increases will be:

Stagflation is a combination of:

On the short-run Phillips curve, the expectations of inflation:

Refer to the graph shown. Expectations of inflation at point B are:

If the velocity of money is about 1.8 and nominal GDP is $14.4 trillion, what is the money supply?

Suppose the U.S. money supply increases from $7.6 trillion to $8.3 trillion. If there is zero real economic growth, and velocity stays constant, then according to the quantity theory of money, the U.S. inflation rate during this period would be:

If the velocity of money falls from 1.95 to 1.85, the decline in velocity implies that:

A basic rule of thumb to predict inflation is that it equals:

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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