Question 1

With respect to real output, in the long run, money is:

Accepted Answer

A)  expansionary. 
B)  velocity. 
C)  temporary. 
D)  neutral. 
A)  expansionary. 
B)  velocity. 
C)  temporary. 
D)  neutral.

Question 2

The price of phone calls has risen over time as a result of inflation.

Accepted Answer

A) True 
 B)False

Question 3

In the long run, money is neutral.

Accepted Answer

A) True 
 B)False

Question 4

Which price index measures the average price for a basket of goods purchased by a typical American consumer?

Accepted Answer

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

Question 5

The velocity of money is:

Accepted Answer

A)  the average number of times a dollar is spent on final goods and services in a year. 
B)  a price that has been corrected for inflation. 
C)  when people mistake changes in nominal prices for changes in real prices. 
D)  an increase in the average level of prices. 
A)  the average number of times a dollar is spent on final goods and services in a year. 
B)  a price that has been corrected for inflation. 
C)  when people mistake changes in nominal prices for changes in real prices. 
D)  an increase in the average level of prices.

Question 6

Inflation tends to cause nominal wages to:

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain constant. 
D)  become more difficult to predict. 
A)  increase. 
B)  decrease. 
C)  remain constant. 
D)  become more difficult to predict.

Question 7

The average price for a basket of goods bought by a typical U.S. consumer is measured by 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 8

If a price index increased from 400 to 440 over the course of a year, then the inflation rate is:

Accepted Answer

A)  4%. 
B)  9%. 
C)  10%. 
D)  40%. 
A)  4%. 
B)  9%. 
C)  10%. 
D)  40%.

Question 9

Suppose the average level of prices increased from 100 to 110 between 2007 and 2008, and from 110 to 115 between 2008 and 2009. Between 2008 and 2009, there was:

Accepted Answer

A)  deflation. 
B)  hyperinflation. 
C)  disinflation. 
D)  inflation in the real price of everything. 
A)  deflation. 
B)  hyperinflation. 
C)  disinflation. 
D)  inflation in the real price of everything.

Question 10

In the short run, money is neutral.

Accepted Answer

A) True 
 B)False

Question 11

For a tax system in which higher income earners pay a larger share of their incomes in taxes, a higher inflation rate:

Accepted Answer

A)  lowers the tax burden of taxpayers. 
B)  raises the tax burden of taxpayers. 
C)  does not affect the tax burden of taxpayers. 
D)  can raise or lower the tax burden of taxpayers, depending on their income levels. 
A)  lowers the tax burden of taxpayers. 
B)  raises the tax burden of taxpayers. 
C)  does not affect the tax burden of taxpayers. 
D)  can raise or lower the tax burden of taxpayers, depending on their income levels.

Question 12

Which of the three price indexes measures the average price level of the largest total number of goods?

Accepted Answer

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

Question 13

If the inflation rate falls from 4% in 2005 to 2% in 2006, then:

Accepted Answer

A)  disinflation has occurred. 
B)  deflation has occurred. 
C)  the average price level has declined. 
D)  the value of money has increased. 
A)  disinflation has occurred. 
B)  deflation has occurred. 
C)  the average price level has declined. 
D)  the value of money has increased.

Question 14

When a nation has a money supply of 4,000, a money velocity of 2, and a GDP of 800, the price level is 100.

Accepted Answer

A) True 
 B)False

Question 15

In hyperinflationary situations, one might expect the velocity of money to increase.

Accepted Answer

A) True 
 B)False

Question 16

When the price of a good in Russia increases from 20 rubles to 20 million rubles in a single year, the nation is experiencing:

Accepted Answer

A)  deflation. 
B)  falling GDP per capita. 
C)  hyperinflation. 
D)  high disinflation. 
A)  deflation. 
B)  falling GDP per capita. 
C)  hyperinflation. 
D)  high disinflation.

Question 17

Lillian loaned A.J. $10,000 and increased her purchasing power by $200 when A.J. repaid the loan a year later. Deflation of 2% also occurred that year. What nominal interest rate did Lillian charge A.J.?

Accepted Answer

A)  0% 
B)  2% 
C)  4% 
D)  2.5% 
A)  0% 
B)  2% 
C)  4% 
D)  2.5%

Question 18

The quantity theory of money is consistent with economist Milton Friedman's argument that "inflation is always and everywhere a monetary phenomenon."

Accepted Answer

A) True 
 B)False

Question 19

The realized real rate of return for lenders is equal to the nominal rate of return:

Accepted Answer

A)  plus the inflation rate. 
B)  minus the inflation rate. 
C)  times the inflation rate. 
D)  divided by the inflation rate times 100. 
A)  plus the inflation rate. 
B)  minus the inflation rate. 
C)  times the inflation rate. 
D)  divided by the inflation rate times 100.

Question 20

When the expected rate of inflation is higher than the actual rate of inflation, wealth is:

Accepted Answer

A)  redistributed at random. 
B)  not redistributed at all. 
C)  redistributed from borrowers to lenders. 
D)  redistributed from lenders to borrowers. 
A)  redistributed at random. 
B)  not redistributed at all. 
C)  redistributed from borrowers to lenders. 
D)  redistributed from lenders to borrowers.

Exam 12: Inflation and the Quantity Theory of Money

With respect to real output, in the long run, money is:

The price of phone calls has risen over time as a result of inflation.

In the long run, money is neutral.

Which price index measures the average price for a basket of goods purchased by a typical American consumer?

The velocity of money is:

Inflation tends to cause nominal wages to:

The average price for a basket of goods bought by a typical U.S. consumer is measured by the:

If a price index increased from 400 to 440 over the course of a year, then the inflation rate is:

Suppose the average level of prices increased from 100 to 110 between 2007 and 2008, and from 110 to 115 between 2008 and 2009. Between 2008 and 2009, there was:

In the short run, money is neutral.

For a tax system in which higher income earners pay a larger share of their incomes in taxes, a higher inflation rate:

Which of the three price indexes measures the average price level of the largest total number of goods?

If the inflation rate falls from 4% in 2005 to 2% in 2006, then:

When a nation has a money supply of 4,000, a money velocity of 2, and a GDP of 800, the price level is 100.

In hyperinflationary situations, one might expect the velocity of money to increase.

When the price of a good in Russia increases from 20 rubles to 20 million rubles in a single year, the nation is experiencing:

Lillian loaned A.J. $10,000 and increased her purchasing power by $200 when A.J. repaid the loan a year later. Deflation of 2% also occurred that year. What nominal interest rate did Lillian charge A.J.?

The quantity theory of money is consistent with economist Milton Friedman's argument that "inflation is always and everywhere a monetary phenomenon."

The realized real rate of return for lenders is equal to the nominal rate of return:

When the expected rate of inflation is higher than the actual rate of inflation, wealth is:

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

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