Question 1

Compared to other countries, inflation in the United States has been:

Accepted Answer

A)  about the same. 
B)  relatively high. 
C)  relatively low. 
D)  extremely unpredictable. 
A)  about the same. 
B)  relatively high. 
C)  relatively low. 
D)  extremely unpredictable.

Question 2

Jordan loaned Taylor $1,200 on March 15, 2009. Taylor returned $1,260 on March 14, 2010. Inflation was 2% over the 1-year period. What is the real interest rate that Taylor paid?

Accepted Answer

A)  2% 
B)  3% 
C)  5% 
D)  7% 
A)  2% 
B)  3% 
C)  5% 
D)  7%

Question 3

When inflation rises unexpectedly:

Accepted Answer

A)  the real interest rate will exceed the equilibrium rate, which will benefit lenders and harm borrowers. 
B)  the real interest rate will exceed the equilibrium rate, which will benefit borrowers and harm lenders. 
C)  the real interest rate will fall short of the equilibrium rate, which will benefit lenders and harm borrowers. 
D)  the real interest rate will fall short of the equilibrium rate, which will benefit borrowers and harm lenders. 
A)  the real interest rate will exceed the equilibrium rate, which will benefit lenders and harm borrowers. 
B)  the real interest rate will exceed the equilibrium rate, which will benefit borrowers and harm lenders. 
C)  the real interest rate will fall short of the equilibrium rate, which will benefit lenders and harm borrowers. 
D)  the real interest rate will fall short of the equilibrium rate, which will benefit borrowers and harm lenders.

Question 4

The "inflation parable" in the text refers to the fact that an unexpected change in the money supply affects:

Accepted Answer

A)  real GDP only in the long run. 
B)  real GDP only in the short run. 
C)  real GDP in both the short run and the long run. 
D)  only inflation in the short run. 
A)  real GDP only in the long run. 
B)  real GDP only in the short run. 
C)  real GDP in both the short run and the long run. 
D)  only inflation in the short run.

Question 5

Monetizing the debt occurs when a government:

Accepted Answer

A)  raises tax to pay off the debt. 
B)  issues more debt to finance its budget deficit. 
C)  decreases the money supply to pay off the debts. 
D)  pays off its debts by printing money. 
A)  raises tax to pay off the debt. 
B)  issues more debt to finance its budget deficit. 
C)  decreases the money supply to pay off the debts. 
D)  pays off its debts by printing money.

Question 6

Suppose a worker earns twice as much income this year as 5 years ago. Is that worker necessarily better off in terms of the goods and services that can be purchased with that income today? How could you tell?

Accepted Answer

To find out if this worker has become be

Question 7

If the money supply in a country is $200 million, the velocity of money is 5, and real GDP is 250 million, the price level of the country must be:

Accepted Answer

A)  1.25. 
B)  4.00. 
C)  6.25. 
D)  8.00. 
A)  1.25. 
B)  4.00. 
C)  6.25. 
D)  8.00.

Question 8

The ratio of nominal economic output to real economic output multiplied by 100 is the:

Accepted Answer

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

Question 9

For a given nominal interest rate, an increase in the inflation rate will cause real interest rates to:

Accepted Answer

A)  remain relatively constant. 
B)  increase. 
C)  decrease. 
D)  become unpredictable. 
A)  remain relatively constant. 
B)  increase. 
C)  decrease. 
D)  become unpredictable.

Question 10

Why could very high rates of inflation cause velocity to increase?

Accepted Answer

A)  The more people earn, the faster they spend it. 
B)  The more money loses its value, the faster people try to spend it. 
C)  The more people earn, the faster prices rise. 
D)  The more inflation there is, the more there is to buy. 
A)  The more people earn, the faster they spend it. 
B)  The more money loses its value, the faster people try to spend it. 
C)  The more people earn, the faster prices rise. 
D)  The more inflation there is, the more there is to buy.

Question 11

The argument that "inflation is always and everywhere a monetary phenomenon" is consistent with:

Accepted Answer

A)  the theory of price confusion. 
B)  the quantity theory of money. 
C)  the theory of money illusion. 
D)  the Fisher effect. 
A)  the theory of price confusion. 
B)  the quantity theory of money. 
C)  the theory of money illusion. 
D)  the Fisher effect.

Question 12

Suppose a nation's inflation rate is 5.8% from Year 1 to Year 2. If the CPI in Year 2 is 200, what was the CPI in Year 1?

Accepted Answer

A)  180 
B)  189 
C)  190 
D)  208 
A)  180 
B)  189 
C)  190 
D)  208

Question 13

The terms "deflation" and "disinflation" have the same meaning.

Accepted Answer

A) True 
 B)False

Question 14

Mistaking changes in nominal prices for changes in real prices is called a:

Accepted Answer

A)  nominal illusion. 
B)  real illusion. 
C)  price illusion. 
D)  money illusion. 
A)  nominal illusion. 
B)  real illusion. 
C)  price illusion. 
D)  money illusion.

Question 15

Even moderate inflation typically:

Accepted Answer

A)  increases real prices. 
B)  increases the amount of taxes that people pay over time. 
C)  decreases average household consumption. 
D)  decreases the number of long-term contracts signed. 
A)  increases real prices. 
B)  increases the amount of taxes that people pay over time. 
C)  decreases average household consumption. 
D)  decreases the number of long-term contracts signed.

Question 16

Briefly explain this statement: "In the long run, money is neutral." Does this statement mean the money supply has no effect at all on real economic activity? Explain.

Accepted Answer

The statement means that a change in the

Question 17

When the government of Zimbabwe ran out of money, President Robert Mugabe:

Accepted Answer

A)  raised taxes. 
B)  printed more money. 
C)  slashed spending. 
D)  collapsed. 
A)  raised taxes. 
B)  printed more money. 
C)  slashed spending. 
D)  collapsed.

Question 18

Most cases of national hyperinflation are caused by governments attempting to redistribute wealth to poorer citizens.

Accepted Answer

A) True 
 B)False

Question 19

What happens to workers who contract for cost of living allowances of 10% a year when the inflation rate falls to 4%?

Accepted Answer

A)  They lose purchasing power. 
B)  They are paying an inflation tax. 
C)  They become more costly to employ and may lose their jobs. 
D)  They must be suffering from money illusion. 
A)  They lose purchasing power. 
B)  They are paying an inflation tax. 
C)  They become more costly to employ and may lose their jobs. 
D)  They must be suffering from money illusion.

Question 20

In the equation Mv = PYR, P represents:

Accepted Answer

A)  average productivity. 
B)  the average price level. 
C)  inflation. 
D)  corporate profits. 
A)  average productivity. 
B)  the average price level. 
C)  inflation. 
D)  corporate profits.

Exam 12: Inflation and the Quantity Theory of Money

Compared to other countries, inflation in the United States has been:

Jordan loaned Taylor $1,200 on March 15, 2009. Taylor returned $1,260 on March 14, 2010. Inflation was 2% over the 1-year period. What is the real interest rate that Taylor paid?

When inflation rises unexpectedly:

The "inflation parable" in the text refers to the fact that an unexpected change in the money supply affects:

Monetizing the debt occurs when a government:

Suppose a worker earns twice as much income this year as 5 years ago. Is that worker necessarily better off in terms of the goods and services that can be purchased with that income today? How could you tell?

If the money supply in a country is $200 million, the velocity of money is 5, and real GDP is 250 million, the price level of the country must be:

The ratio of nominal economic output to real economic output multiplied by 100 is the:

For a given nominal interest rate, an increase in the inflation rate will cause real interest rates to:

Why could very high rates of inflation cause velocity to increase?

The argument that "inflation is always and everywhere a monetary phenomenon" is consistent with:

Suppose a nation's inflation rate is 5.8% from Year 1 to Year 2. If the CPI in Year 2 is 200, what was the CPI in Year 1?

The terms "deflation" and "disinflation" have the same meaning.

Mistaking changes in nominal prices for changes in real prices is called a:

Even moderate inflation typically:

Briefly explain this statement: "In the long run, money is neutral." Does this statement mean the money supply has no effect at all on real economic activity? Explain.

When the government of Zimbabwe ran out of money, President Robert Mugabe:

Most cases of national hyperinflation are caused by governments attempting to redistribute wealth to poorer citizens.

What happens to workers who contract for cost of living allowances of 10% a year when the inflation rate falls to 4%?

In the equation Mv = PYR, P represents:

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

In the equation Mv = PY_R, P represents: