Question 1

When computing the consumer price index, the Bureau of Labor Statistics takes into account changes in the:

Accepted Answer

A)  type of goods but not the quality of goods purchased by the average consumer. 
B)  quality of goods but not the type of goods purchased by the average consumer. 
C)  type of goods and the quality of goods. 
D)  neither the price nor the quality of the goods. 
A)  type of goods but not the quality of goods purchased by the average consumer. 
B)  quality of goods but not the type of goods purchased by the average consumer. 
C)  type of goods and the quality of goods. 
D)  neither the price nor the quality of the goods.

Question 2

A real price is the price:

Accepted Answer

A)  that consumers really pay. 
B)  after adjusting for any discounts. 
C)  after adding any additional finance charges. 
D)  that has been corrected for inflation. 
A)  that consumers really pay. 
B)  after adjusting for any discounts. 
C)  after adding any additional finance charges. 
D)  that has been corrected for inflation.

Question 3

What two components of the quantity theory of money are assumed to be stable over time?

Accepted Answer

A)  the velocity of money and the price level 
B)  real GDP and price level 
C)  real GDP and the velocity of money 
D)  the money supply and the velocity of money 
A)  the velocity of money and the price level 
B)  real GDP and price level 
C)  real GDP and the velocity of money 
D)  the money supply and the velocity of money

Question 4

The Fisher equation implies that if expected inflation is higher than actual inflation, then:

Accepted Answer

A)  the real interest rate will be equal to the equilibrium interest rate. 
B)  the real interest rate will be greater than the equilibrium interest rate. 
C)  the real interest rate will be less than the equilibrium interest rate. 
D)  both the real interest rate and equilibrium interest rate will become undetermined. 
A)  the real interest rate will be equal to the equilibrium interest rate. 
B)  the real interest rate will be greater than the equilibrium interest rate. 
C)  the real interest rate will be less than the equilibrium interest rate. 
D)  both the real interest rate and equilibrium interest rate will become undetermined.

Question 5

Suppose the money supply equals $100 million, the average price level equals 40, and real GDP equals $50 million. Given this information, the velocity of money equals:

Accepted Answer

A) 20. 
B) 80. 
C) 100. 
D) 125. 
A) 20. 
B) 80. 
C) 100. 
D) 125.

Question 6

High and volatile inflation:

Accepted Answer

A)  causes the price of goods and services to deviate from the market price. 
B)  increases the purchasing power of money and income. 
C)  creates high supply of goods and services. 
D)  destroys the ability of market prices to send signals about the value of resources and opportunities. 
A)  causes the price of goods and services to deviate from the market price. 
B)  increases the purchasing power of money and income. 
C)  creates high supply of goods and services. 
D)  destroys the ability of market prices to send signals about the value of resources and opportunities.

Question 7

Use the following to answer questions: Table: Consumer Price Index $$\begin{array} { l c } 
\hline \text { Year } & \begin{array} { l } 
\text { CPI } \
\text { (End-of-Yea } \
\text { r Value) }
\end{array} \
\hline 2005 & 195.3 \
2006 & 201.6 \
2007 & 207.3 \
2008 & 215.3 \
2009 & 214.5 \
2010 & 218.1 \
\hline
\end{array}$$
-(Table: Consumer Price Index) Refer to the CPI values in the table for the years 2005 to 2010. What was the approximate inflation rate over the period 2009 to 2010?

Accepted Answer

A)  3.60% 
B)  18.10% 
C)  21.81% 
D)  1.68% 
A)  3.60% 
B)  18.10% 
C)  21.81% 
D)  1.68%

Question 8

Nobel Prize-winning economist Milton Friedman says, "Inflation is always and everywhere a _____."

Accepted Answer

A)  monetary phenomenon 
B)  risky phenomenon 
C)  velocity phenomenon 
D)  growth phenomenon 
A)  monetary phenomenon 
B)  risky phenomenon 
C)  velocity phenomenon 
D)  growth phenomenon

Question 9

List three nations that have experienced hyperinflation. What is the cause of hyperinflation, and how does hyperinflation and velocity interact?

Accepted Answer

The nations listed in the textbook are A

Question 10

Briefly discuss the three major costs of inflation. How does inflation benefit governments?

Accepted Answer

The first cost of inflation is that infl

Question 11

According to the quantity theory of money, if money supply is $1,000 million, the overall price level is 200, and real GDP is 50 million, then the velocity of money is equal to:

Accepted Answer

A) 10. 
B) 20. 
C) 50. 
D) 100. 
A) 10. 
B) 20. 
C) 50. 
D) 100.

Question 12

The percentage increase in a price index from one year to the next is the:

Accepted Answer

A)  real GDP growth rate. 
B)  inflation rate. 
C)  GDP inflator. 
D)  nominal GDP growth rate. 
A)  real GDP growth rate. 
B)  inflation rate. 
C)  GDP inflator. 
D)  nominal GDP growth rate.

Question 13

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 1 year. In which year did lenders receive exactly the amount of real interest they expected?

Accepted Answer

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

Question 14

Which answer best explains why prices of some popular goods have fallen over time?

Accepted Answer

A)  Consumers have increased their demand for these products over time. 
B)  Consumer demand has become more inelastic. 
C)  Technological advances have reduced production costs. 
D)  Supply of the good has decreased. 
A)  Consumers have increased their demand for these products over time. 
B)  Consumer demand has become more inelastic. 
C)  Technological advances have reduced production costs. 
D)  Supply of the good has decreased.

Question 15

Explain the difference between the price level and the rate of inflation.

Accepted Answer

The price level is the average price of

Question 16

What is the best explanation for the fact that the dollars spent on food has risen since the early 1980s but that food costs less now than it did then?

Accepted Answer

A)  Real food prices decreased over the period. 
B)  Available food per capita decreased over the period. 
C)  The PPI decreased over the period. 
D)  The CPI decreased over the period. 
A)  Real food prices decreased over the period. 
B)  Available food per capita decreased over the period. 
C)  The PPI decreased over the period. 
D)  The CPI decreased over the period.

Question 17

Inflation increases as long as the average level of prices increases.

Accepted Answer

A) True 
 B)False

Question 18

According to the Fisher equation, if the expected inflation rate is less than the actual inflation rate, then the real interest rate will be:

Accepted Answer

A)  lower than the equilibrium interest rate. 
B)  higher than the equilibrium interest rate. 
C)  the same as the equilibrium interest rate. 
D)  higher or lower than the equilibrium interest rate, depending on the degree of money illusion. 
A)  lower than the equilibrium interest rate. 
B)  higher than the equilibrium interest rate. 
C)  the same as the equilibrium interest rate. 
D)  higher or lower than the equilibrium interest rate, depending on the degree of money illusion.

Question 19

High volatility in the inflation rate can result in:

Accepted Answer

A)  improper allocation of resources. 
B)  sudden changes in output. 
C)  low volatility in the CPI. 
D)  deflation. 
A)  improper allocation of resources. 
B)  sudden changes in output. 
C)  low volatility in the CPI. 
D)  deflation.

Question 20

Episodes of hyperinflation are caused by:

Accepted Answer

A)  severe recessions. 
B)  extreme economic booms. 
C)  extremely high rates of money growth. 
D)  moderately high rates of real GDP growth. 
A)  severe recessions. 
B)  extreme economic booms. 
C)  extremely high rates of money growth. 
D)  moderately high rates of real GDP growth.

When computing the consumer price index, the Bureau of Labor Statistics takes into account changes in the:

A real price is the price:

What two components of the quantity theory of money are assumed to be stable over time?

The Fisher equation implies that if expected inflation is higher than actual inflation, then:

Suppose the money supply equals $100 million, the average price level equals 40, and real GDP equals $50 million. Given this information, the velocity of money equals:

High and volatile inflation:

Nobel Prize-winning economist Milton Friedman says, "Inflation is always and everywhere a _____."

List three nations that have experienced hyperinflation. What is the cause of hyperinflation, and how does hyperinflation and velocity interact?

Briefly discuss the three major costs of inflation. How does inflation benefit governments?

According to the quantity theory of money, if money supply is $1,000 million, the overall price level is 200, and real GDP is 50 million, then the velocity of money is equal to:

The percentage increase in a price index from one year to the next is the:

Which answer best explains why prices of some popular goods have fallen over time?

Explain the difference between the price level and the rate of inflation.

What is the best explanation for the fact that the dollars spent on food has risen since the early 1980s but that food costs less now than it did then?

Inflation increases as long as the average level of prices increases.

According to the Fisher equation, if the expected inflation rate is less than the actual inflation rate, then the real interest rate will be:

High volatility in the inflation rate can result in:

Episodes of hyperinflation are caused by:

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

When computing the consumer price index, the Bureau of Labor Statistics takes into account changes in the:

A real price is the price:

What two components of the quantity theory of money are assumed to be stable over time?

The Fisher equation implies that if expected inflation is higher than actual inflation, then:

Suppose the money supply equals $100 million, the average price level equals 40, and real GDP equals $50 million. Given this information, the velocity of money equals:

High and volatile inflation:

Nobel Prize-winning economist Milton Friedman says, "Inflation is always and everywhere a _____."

List three nations that have experienced hyperinflation. What is the cause of hyperinflation, and how does hyperinflation and velocity interact?

Briefly discuss the three major costs of inflation. How does inflation benefit governments?

According to the quantity theory of money, if money supply is $1,000 million, the overall price level is 200, and real GDP is 50 million, then the velocity of money is equal to:

The percentage increase in a price index from one year to the next is the:

Which answer best explains why prices of some popular goods have fallen over time?

Explain the difference between the price level and the rate of inflation.

What is the best explanation for the fact that the dollars spent on food has risen since the early 1980s but that food costs less now than it did then?

Inflation increases as long as the average level of prices increases.

According to the Fisher equation, if the expected inflation rate is less than the actual inflation rate, then the real interest rate will be:

High volatility in the inflation rate can result in:

Episodes of hyperinflation are caused by:

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