Question 1

The case of hyperinflation in Zimbabwe in the late 2000s was an example of the effects of:

Accepted Answer

A)  the government monetizing its debt. 
B)  large rainfall shocks. 
C)  amplification mechanisms. 
D)  a lack of foreign aid. 
A)  the government monetizing its debt. 
B)  large rainfall shocks. 
C)  amplification mechanisms. 
D)  a lack of foreign aid. A

Question 2

The GDP deflator:

Accepted Answer

A)  measures the average price for a basket of goods bought by an average consumer. 
B)  measures the average price received by producers. 
C)  is the ratio of nominal GDP to real GDP multiplied by 100. 
D)  is the price index associated with changes in the cost of living to consumers. 
A)  measures the average price for a basket of goods bought by an average consumer. 
B)  measures the average price received by producers. 
C)  is the ratio of nominal GDP to real GDP multiplied by 100. 
D)  is the price index associated with changes in the cost of living to consumers. C

Question 3

When actual inflation is less than expected, wealth is transferred from the borrower to the lender.

Accepted Answer

A) True 
 B)False  True

Question 4

Discuss the reasons for Zimbabwe's high inflation rate.

Accepted Answer

Because of the policies of President Rob

Question 5

In times of rising prices, lenders will always benefit at the expense of borrowers.

Accepted Answer

A) True 
 B)False

Question 6

The GDP deflator:

Accepted Answer

A)  measures the average price for a basket of goods bought by an average consumer. 
B)  measures the average price received by producers. 
C)  measures the average price of all final goods and services produced. 
D)  is the price index adjusted with changes in GDP. 
A)  measures the average price for a basket of goods bought by an average consumer. 
B)  measures the average price received by producers. 
C)  measures the average price of all final goods and services produced. 
D)  is the price index adjusted with changes in GDP.

Question 7

When disinflation arises unexpectedly, the real interest rate will _____ the equilibrium rate, which will benefit _____.

Accepted Answer

A)  exceed; lenders and harm borrowers 
B)  exceed; benefit borrowers and harm lenders 
C)  fall short of; lenders and harm borrowers 
D)  fall short of; borrowers and harm lenders 
A)  exceed; lenders and harm borrowers 
B)  exceed; benefit borrowers and harm lenders 
C)  fall short of; lenders and harm borrowers 
D)  fall short of; borrowers and harm lenders

Question 8

If the price level in 2016 is 140 and it falls to 133 in 2017, what has the economy experienced between 2016 and 2017?

Accepted Answer

A)  5% inflation 
B)  7% inflation 
C)  7% deflation 
D)  5% deflation 
A)  5% inflation 
B)  7% inflation 
C)  7% deflation 
D)  5% deflation

Question 9

According to the quantity theory of money, an increase in the money supply causes an increase in _____ over the long run.

Accepted Answer

A)  production 
B)  the velocity of money 
C)  real GDP 
D)  prices 
A)  production 
B)  the velocity of money 
C)  real GDP 
D)  prices

Question 10

The argument that "money is neutral in the long run" means that an increase in the money supply can:

Accepted Answer

A)  increase real GDP only temporarily. 
B)  decrease real GDP only temporarily. 
C)  increase real GDP permanently. 
D)  decrease real GDP permanently. 
A)  increase real GDP only temporarily. 
B)  decrease real GDP only temporarily. 
C)  increase real GDP permanently. 
D)  decrease real GDP permanently.

Question 11

When using the quantity theory of money to analyze the relation between inflation, money, real output, and prices, we typically assume:

Accepted Answer

A)  real output and the money supply are constant. 
B)  real output and the velocity of money are constant. 
C)  the velocity of money is equal to the inflation rate. 
D)  the growth rate of the money supply is constant. 
A)  real output and the money supply are constant. 
B)  real output and the velocity of money are constant. 
C)  the velocity of money is equal to the inflation rate. 
D)  the growth rate of the money supply is constant.

Question 12

If the price of gasoline increased 100% during a period of time when inflation was 100%, then the relative real price of gasoline would:

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain constant. 
D)  increase or decrease, depending on whether income had changed or not. 
A)  increase. 
B)  decrease. 
C)  remain constant. 
D)  increase or decrease, depending on whether income had changed or not.

Question 13

An assumption of the quantity theory of money is that real GDP growth:

Accepted Answer

A)  remains relatively constant. 
B)  rises with increases in the money supply. 
C)  rises with increases in the velocity of money. 
D)  rises with increases in the price level. 
A)  remains relatively constant. 
B)  rises with increases in the money supply. 
C)  rises with increases in the velocity of money. 
D)  rises with increases in the price level.

Question 14

Use the following to answer questions: Table: CPI $$\begin{array} { l c } 
\hline \text { Year } & \begin{array} { c } 
\text { CPI (End-of- } \
\text { Year Value) }
\end{array} \
\hline 1999 & 110 \
2000 & 115 \
2001 & 117 \
2002 & 115 \
\hline
\end{array}$$
-(Table: CPI) According to the table, in which of the following years did this country experience disinflation?

Accepted Answer

A)  2001 only 
B)  2002 only 
C)  both 2001 and 2002 
D)  neither 2001 nor 2002 
A)  2001 only 
B)  2002 only 
C)  both 2001 and 2002 
D)  neither 2001 nor 2002

Question 15

If the average price level rises from 120 in year 1 to 130 in year 2, the inflation rate between years 1 and 2 will be:

Accepted Answer

A)  7.69%. 
B)  8.33%. 
C)  9.23%. 
D)  10%. 
A)  7.69%. 
B)  8.33%. 
C)  9.23%. 
D)  10%.

Question 16

The Fisher effect indicates that an increase in the expected inflation rate will cause the real rate of interest to:

Accepted Answer

A)  remain relatively constant. 
B)  increase by the same amount. 
C)  decrease by the same amount. 
D)  become unpredictable. 
A)  remain relatively constant. 
B)  increase by the same amount. 
C)  decrease by the same amount. 
D)  become unpredictable.

Question 17

_____ is a decrease in the average level of prices, whereas _____ is a reduction in the inflation rate.

Accepted Answer

A)  Deflation; disinflation 
B)  Disinflation; deflation 
C)  Stagflation; disinflation 
D)  Deflation; stagflation 
A)  Deflation; disinflation 
B)  Disinflation; deflation 
C)  Stagflation; disinflation 
D)  Deflation; stagflation

Question 18

Why does a government with massive debt not always inflate its debt away despite the incentive to increase the money supply?

Accepted Answer

One reason is the Fisher effect. If lend

Question 19

Why do we use the "real" prices of goods to measure how expensive things have become?

Accepted Answer

A)  to find out what the current prices of goods and services are 
B)  to estimate the periods when hyperinflation has occurred 
C)  to find out what the inflation rate has been 
D)  to see whether there have been any changes in our purchasing power 
A)  to find out what the current prices of goods and services are 
B)  to estimate the periods when hyperinflation has occurred 
C)  to find out what the inflation rate has been 
D)  to see whether there have been any changes in our purchasing power

Question 20

If a lender expects an inflation rate of 5% and asks for a nominal interest rate of 10%, then the lender expects to earn a real interest rate of:

Accepted Answer

A)  2%. 
B)  5%. 
C)  10%. 
D)  15%. 
A)  2%. 
B)  5%. 
C)  10%. 
D)  15%.

Exam 12: Inflation and the Quantity Theory of Money

The case of hyperinflation in Zimbabwe in the late 2000s was an example of the effects of:

The GDP deflator:

When actual inflation is less than expected, wealth is transferred from the borrower to the lender.

Discuss the reasons for Zimbabwe's high inflation rate.

In times of rising prices, lenders will always benefit at the expense of borrowers.

The GDP deflator:

When disinflation arises unexpectedly, the real interest rate will _____ the equilibrium rate, which will benefit _____.

If the price level in 2016 is 140 and it falls to 133 in 2017, what has the economy experienced between 2016 and 2017?

According to the quantity theory of money, an increase in the money supply causes an increase in _____ over the long run.

The argument that "money is neutral in the long run" means that an increase in the money supply can:

When using the quantity theory of money to analyze the relation between inflation, money, real output, and prices, we typically assume:

If the price of gasoline increased 100% during a period of time when inflation was 100%, then the relative real price of gasoline would:

An assumption of the quantity theory of money is that real GDP growth:

Use the following to answer questions: Table: CPI Year CPI (End-of- Year Value) 1999 110 2000 115 2001 117 2002 115 -(Table: CPI) According to the table, in which of the following years did this country experience disinflation?

If the average price level rises from 120 in year 1 to 130 in year 2, the inflation rate between years 1 and 2 will be:

The Fisher effect indicates that an increase in the expected inflation rate will cause the real rate of interest to:

_____ is a decrease in the average level of prices, whereas _____ is a reduction in the inflation rate.

Why does a government with massive debt not always inflate its debt away despite the incentive to increase the money supply?

Why do we use the "real" prices of goods to measure how expensive things have become?

If a lender expects an inflation rate of 5% and asks for a nominal interest rate of 10%, then the lender expects to earn a real interest rate of:

The Big Ideas

The Power of Trade and Comparative Advantage

Supply and Demand

Equilibrium: How Supply and Demand Determine Prices

Price Ceilings and Floors

GDP and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth, Capital Accumulation and the Economics of Ideas: Catching up Vs the Cutting Edge

Saving, Investment, and the Financial System

Stock Markets and Personal Finance

Unemployment and Labor Force Participation

Business Fluctuations: Aggregate Demand and Supply

Transmission and Amplification Mechanisms

The Federal Reserve System and Open Market Operations

Monetary Policy

The Federal Budget: Taxes and Spending

Fiscal Policy

International Trade

International Finance

Political Economy and Public Choice

Filters

When disinflation arises unexpectedly, the real interest rate will _ the equilibrium rate, which will benefit _.

_ is a decrease in the average level of prices, whereas _ is a reduction in the inflation rate.