Question 1

A real price is:

Accepted Answer

A)  an increase in the average level of the price of a good. 
B)  a decrease in the average level of the price of a good. 
C)  a price that has been corrected for inflation. 
D)  the average number of times a dollar is spent on final goods and services in a year. 
A)  an increase in the average level of the price of a good. 
B)  a decrease in the average level of the price of a good. 
C)  a price that has been corrected for inflation. 
D)  the average number of times a dollar is spent on final goods and services in a year.

Question 2

Debt monetization means that a government pays off its debt by:

Accepted Answer

A)  lowering inflation. 
B)  raising tax revenues. 
C)  borrowing from foreigners. 
D)  increasing the money supply. 
A)  lowering inflation. 
B)  raising tax revenues. 
C)  borrowing from foreigners. 
D)  increasing the money supply.

Question 3

Which measure of prices includes all of the final goods and services in a nation's output?

Accepted Answer

A)  consumer price index 
B)  the GDP deflator 
C)  producer price index 
D)  the exchange rate 
A)  consumer price index 
B)  the GDP deflator 
C)  producer price index 
D)  the exchange rate

Question 4

If the average level of prices in an economy equals 100, the money supply equals $100,000, and the level of real output equals $5,000, then the velocity of money is:

Accepted Answer

A) 5. 
B) 20. 
C) 100. 
D) 1,000. 
A) 5. 
B) 20. 
C) 100. 
D) 1,000.

Question 5

If the price level in 2018 is 150 and it rises to 165 in 2019, what is the rate of inflation between 2018 and 2019?

Accepted Answer

A)  9% 
B)  10% 
C)  15% 
D)  165% 
A)  9% 
B)  10% 
C)  15% 
D)  165%

Question 6

If people expect an inflation rate of 3% and later it turns out to be 5%, then the real rate of return will be:

Accepted Answer

A)  less than the equilibrium rate. 
B)  greater than the equilibrium rate. 
C)  3%. 
D)  5%. 
A)  less than the equilibrium rate. 
B)  greater than the equilibrium rate. 
C)  3%. 
D)  5%.

Question 7

According to the quantity theory of money, money growth in the long run:

Accepted Answer

A)  affects both real GDP growth and inflation. 
B)  affects real GDP growth only. 
C)  affects inflation only. 
D)  has no effect on either real GDP growth or inflation. 
A)  affects both real GDP growth and inflation. 
B)  affects real GDP growth only. 
C)  affects inflation only. 
D)  has no effect on either real GDP growth or inflation.

Question 8

The quantity theory of money:

Accepted Answer

A)  describes the general relationship between money, velocity, real output, and prices. 
B)  presents the critical roles of money demand in regulating the level of prices. 
C)  derives the optimal quantity of inflation. 
D)  explains the equilibrium between money supply and money demand. 
A)  describes the general relationship between money, velocity, real output, and prices. 
B)  presents the critical roles of money demand in regulating the level of prices. 
C)  derives the optimal quantity of inflation. 
D)  explains the equilibrium between money supply and money demand.

Question 9

According to Nobel laureate Milton Friedman, "inflation is _____."

Accepted Answer

A)  a good thing 
B)  found everywhere 
C)  always present 
D)  always and everywhere a monetary phenomenon 
A)  a good thing 
B)  found everywhere 
C)  always present 
D)  always and everywhere a monetary phenomenon

Question 10

Which one of the following is NOT a cost of inflation?

Accepted Answer

A)  wasted resources associated with price confusion 
B)  higher tax burdens if tax brackets are not adjusted for inflation 
C)  wealth redistribution from private citizens to the government 
D)  an automatic decrease in real wages throughout the period of inflation. 
A)  wasted resources associated with price confusion 
B)  higher tax burdens if tax brackets are not adjusted for inflation 
C)  wealth redistribution from private citizens to the government 
D)  an automatic decrease in real wages throughout the period of inflation.

Question 11

When inflation functions as a type of tax, which of the following groups of people will be hurt the most?

Accepted Answer

A)  people or businesses with deposits in a savings account that pays an interest rate higher than the rate of inflation 
B)  people or businesses that invest in gold, silver, platinum, or other metals 
C)  people who hold currency and coins in their wallet, purse, or at home 
D)  people who invest their money in mutual funds 
A)  people or businesses with deposits in a savings account that pays an interest rate higher than the rate of inflation 
B)  people or businesses that invest in gold, silver, platinum, or other metals 
C)  people who hold currency and coins in their wallet, purse, or at home 
D)  people who invest their money in mutual funds

Question 12

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 deflation?

Accepted Answer

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

Question 13

Which of the following correctly represents deflation?

Accepted Answer

A) E$\pi$ > $\pi$ B) E$\pi$ < $\pi$ C) E$\pi$ = $\pi$ D) ($\pi$< 0) A) E$\pi$ > $\pi$ B) E$\pi$ < $\pi$ C) E$\pi$ = $\pi$ D) ($\pi$< 0)

Question 14

If the velocity of money and real GDP are fixed, then the quantity theory of money implies that the price level will:

Accepted Answer

A)  increase at a lower rate than the growth in the money supply. 
B)  increase at the same rate as the growth in the money supply. 
C)  increase at a higher rate than the growth in the money supply. 
D)  be unrelated to the growth in the money supply. 
A)  increase at a lower rate than the growth in the money supply. 
B)  increase at the same rate as the growth in the money supply. 
C)  increase at a higher rate than the growth in the money supply. 
D)  be unrelated to the growth in the money supply.

Question 15

Money illusion occurs when people:

Accepted Answer

A)  correctly see changes in nominal prices. 
B)  correctly see changes in real prices. 
C)  see changes in real prices and mistake them for changes in nominal prices. 
D)  see changes in nominal prices and mistake them for changes in real prices. 
A)  correctly see changes in nominal prices. 
B)  correctly see changes in real prices. 
C)  see changes in real prices and mistake them for changes in nominal prices. 
D)  see changes in nominal prices and mistake them for changes in real prices.

Question 16

Which measure of the average price level most closely corresponds to a student's daily economic activities?

Accepted Answer

A)  consumer price index 
B)  producer price index 
C)  GDP deflator 
D)  household price index 
A)  consumer price index 
B)  producer price index 
C)  GDP deflator 
D)  household price index

Question 17

Use the following to answer questions: Table: Anticipating Inflation $$\begin{array} { l c c } 
\hline \text { Year } & \text { Predicted Inflation Rate } & \text { Actual Inflation Rate } \
\hline 2000 & 3 \% & 3 \% \
2001 & 3 \% & 2 \% \
2002 & 7 \% & 9 \% \
2003 & 5 \% & 4 \% \
2004 & 4 \% & 7 \% \
\hline
\end{array}$$
-(Table: Anticipating Inflation) Using the inflation data in the table above, assume that all loan contracts have fixed nominal interest rates of 10% and mature after one year. Which year did lenders gain relative to borrowers?

Accepted Answer

A)  2000 
B)  2002 
C)  2003 
D)  2004 
A)  2000 
B)  2002 
C)  2003 
D)  2004

Question 18

The inflation rate is equal to the rate of change of the price level.

Accepted Answer

A) True 
 B)False

Question 19

To compare the $1-an-hour your grandfather earned in 1950 with the $8-an-hour you earn today, you would need to:

Accepted Answer

A)  simply compare $1-an-hour to $8-an-hour. 
B)  add the inflation rates in each year since 1950 until today and add this to your grandfather's wage. 
C)  calculate real wages in both 1950 and today. 
D)  calculate your grandfather's nominal wage in 1950 and compare it to your wage today. 
A)  simply compare $1-an-hour to $8-an-hour. 
B)  add the inflation rates in each year since 1950 until today and add this to your grandfather's wage. 
C)  calculate real wages in both 1950 and today. 
D)  calculate your grandfather's nominal wage in 1950 and compare it to your wage today.

Question 20

A decrease in the inflation rate from 10% to 3% implies that deflation has occurred.

Accepted Answer

A) True 
 B)False

A real price is:

Debt monetization means that a government pays off its debt by:

Which measure of prices includes all of the final goods and services in a nation's output?

If the average level of prices in an economy equals 100, the money supply equals $100,000, and the level of real output equals $5,000, then the velocity of money is:

If the price level in 2018 is 150 and it rises to 165 in 2019, what is the rate of inflation between 2018 and 2019?

If people expect an inflation rate of 3% and later it turns out to be 5%, then the real rate of return will be:

According to the quantity theory of money, money growth in the long run:

The quantity theory of money:

According to Nobel laureate Milton Friedman, "inflation is _____."

Which one of the following is NOT a cost of inflation?

When inflation functions as a type of tax, which of the following groups of people will be hurt the most?

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 deflation?

Which of the following correctly represents deflation?

If the velocity of money and real GDP are fixed, then the quantity theory of money implies that the price level will:

Money illusion occurs when people:

Which measure of the average price level most closely corresponds to a student's daily economic activities?

The inflation rate is equal to the rate of change of the price level.

To compare the $1-an-hour your grandfather earned in 1950 with the $8-an-hour you earn today, you would need to:

A decrease in the inflation rate from 10% to 3% implies that deflation has occurred.

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

Exam 12: Inflation and the Quantity Theory of Money

A real price is:

Debt monetization means that a government pays off its debt by:

Which measure of prices includes all of the final goods and services in a nation's output?

If the average level of prices in an economy equals 100, the money supply equals $100,000, and the level of real output equals $5,000, then the velocity of money is:

If the price level in 2018 is 150 and it rises to 165 in 2019, what is the rate of inflation between 2018 and 2019?

If people expect an inflation rate of 3% and later it turns out to be 5%, then the real rate of return will be:

According to the quantity theory of money, money growth in the long run:

The quantity theory of money:

According to Nobel laureate Milton Friedman, "inflation is _____."

Which one of the following is NOT a cost of inflation?

When inflation functions as a type of tax, which of the following groups of people will be hurt the most?

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 deflation?

Which of the following correctly represents deflation?

If the velocity of money and real GDP are fixed, then the quantity theory of money implies that the price level will:

Money illusion occurs when people:

Which measure of the average price level most closely corresponds to a student's daily economic activities?

The inflation rate is equal to the rate of change of the price level.

To compare the $1-an-hour your grandfather earned in 1950 with the $8-an-hour you earn today, you would need to:

A decrease in the inflation rate from 10% to 3% implies that deflation has occurred.

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