Question 1

If velocity is constant and the economy's real growth rate is 3%, what rate of money growth will achieve price stability?

Accepted Answer

If velocity is constant and real growth

Question 2

If a lender expects an inflation rate of 5% but the inflation rate unexpectedly increases to 7% and if the nominal interest rate was 10%, what is the real rate of interest earned?

Accepted Answer

A)  2% 
B)  3% 
C)  4% 
D)  5% 
A)  2% 
B)  3% 
C)  4% 
D)  5%

Question 3

Two of the challenging factors faced by the BLS when computing the consumer price index are:

Accepted Answer

A)  new goods and better-quality goods. 
B)  new goods and inferior goods. 
C)  used goods and better-quality goods. 
D)  used goods and inferior goods. 
A)  new goods and better-quality goods. 
B)  new goods and inferior goods. 
C)  used goods and better-quality goods. 
D)  used goods and inferior goods.

Question 4

Which of the following measures of inflation is based on a basket of goods and services for a typical household?

Accepted Answer

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

Question 5

If the economy experiences unexpected inflation, then the real interest rate will be _____ than its equilibrium rate, and wealth will be distributed from _____.

Accepted Answer

A)  greater; lenders to borrowers 
B)  less; lenders to borrowers 
C)  greater; borrowers to lenders 
D)  less; borrowers to lenders 
A)  greater; lenders to borrowers 
B)  less; lenders to borrowers 
C)  greater; borrowers to lenders 
D)  less; borrowers to lenders

Question 6

The CPI measures the average price of all final goods and services.

Accepted Answer

A) True 
 B)False

Question 7

All else equal, according to the quantity theory of money, an increase in the velocity of money will cause:

Accepted Answer

A)  deflation. 
B)  disinflation. 
C)  hyperinflation. 
D)  higher inflation. 
A)  deflation. 
B)  disinflation. 
C)  hyperinflation. 
D)  higher inflation.

Question 8

When we examine data from different countries, higher money growth has consistently been associated with:

Accepted Answer

A)  deflation. 
B)  disinflation. 
C)  hyperinflation. 
D)  higher inflation. 
A)  deflation. 
B)  disinflation. 
C)  hyperinflation. 
D)  higher inflation.

Question 9

When changes in nominal prices are confused with changes in real prices, people experience:

Accepted Answer

A)  consumer bias. 
B)  inflationary delusion. 
C)  cyclical price confusion. 
D)  money illusion. 
A)  consumer bias. 
B)  inflationary delusion. 
C)  cyclical price confusion. 
D)  money illusion.

Question 10

In times of financial panic, we expect the velocity of money to:

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain relatively constant. 
D)  first increase and then decrease. 
A)  increase. 
B)  decrease. 
C)  remain relatively constant. 
D)  first increase and then decrease.

Question 11

Monetizing the debt occurs when the government pays off its debts by printing money.

Accepted Answer

A) True 
 B)False

Question 12

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. In which year was the inflation rate the highest?

Accepted Answer

A)  2006 
B)  2007 
C)  2008 
D)  2009 
A)  2006 
B)  2007 
C)  2008 
D)  2009

Question 13

If the money supply is $1 million, the velocity of money is 10, and the price level is 100, what is real GDP?

Accepted Answer

A)  $1,000 
B)  $10,000 
C)  $100,000 
D)  $1 million 
A)  $1,000 
B)  $10,000 
C)  $100,000 
D)  $1 million

Question 14

Using the Fisher effect equation, explain how inflation causes wealth redistribution between lenders and borrowers. Demonstrate with the Fisher effect equation how differences in expected and actual inflation impact actual (or realized) real rates.

Accepted Answer

The Fisher equation is expressed as: i =

Question 15

Volatile hyperinflation causes financial intermediation to:

Accepted Answer

A)  become more efficient. 
B)  favor long-term lending. 
C)  favor first-time borrowers. 
D)  break down. 
A)  become more efficient. 
B)  favor long-term lending. 
C)  favor first-time borrowers. 
D)  break down.

Question 16

Unexpected disinflation will cause the real interest rate to be greater than the equilibrium rate, which will benefit lenders and harm borrowers.

Accepted Answer

A) True 
 B)False

Question 17

The consumer price index measures the:

Accepted Answer

A)  total price of a basket of goods and services bought by a typical consumer. 
B)  average price of a basket of goods and services bought by a typical consumer. 
C)  total price of a basket of goods and services bought by all families in the country. 
D)  average price of a basket of goods and services bought by all families in the country. 
A)  total price of a basket of goods and services bought by a typical consumer. 
B)  average price of a basket of goods and services bought by a typical consumer. 
C)  total price of a basket of goods and services bought by all families in the country. 
D)  average price of a basket of goods and services bought by all families in the country.

Question 18

If the nominal interest rate is 8% while the inflation rate is 10%, then the real rate of return for lenders is:

Accepted Answer

A)  18%. 
B)  10%. 
C)  2%. 
D)  -2%. 
A)  18%. 
B)  10%. 
C)  2%. 
D)  -2%.

Question 19

Assuming the velocity of money and real GDP are fixed, the quantity theory of money predicts that a 2% increase in the money supply causes a 2%:

Accepted Answer

A)  increase in inflation. 
B)  decrease in inflation. 
C)  increase in the average price level. 
D)  decrease in the average price level. 
A)  increase in inflation. 
B)  decrease in inflation. 
C)  increase in the average price level. 
D)  decrease in the average price level.

Question 20

When actual inflation is equal to expected inflation:

Accepted Answer

A)  borrowers are harmed and lenders benefit. 
B)  lenders are harmed and borrowers benefit. 
C)  both borrowers and lenders are harmed. 
D)  neither borrowers nor lenders are harmed. 
A)  borrowers are harmed and lenders benefit. 
B)  lenders are harmed and borrowers benefit. 
C)  both borrowers and lenders are harmed. 
D)  neither borrowers nor lenders are harmed.

If velocity is constant and the economy's real growth rate is 3%, what rate of money growth will achieve price stability?

If a lender expects an inflation rate of 5% but the inflation rate unexpectedly increases to 7% and if the nominal interest rate was 10%, what is the real rate of interest earned?

Two of the challenging factors faced by the BLS when computing the consumer price index are:

Which of the following measures of inflation is based on a basket of goods and services for a typical household?

If the economy experiences unexpected inflation, then the real interest rate will be _ than its equilibrium rate, and wealth will be distributed from _.

The CPI measures the average price of all final goods and services.

All else equal, according to the quantity theory of money, an increase in the velocity of money will cause:

When we examine data from different countries, higher money growth has consistently been associated with:

When changes in nominal prices are confused with changes in real prices, people experience:

In times of financial panic, we expect the velocity of money to:

Monetizing the debt occurs when the government pays off its debts by printing money.

If the money supply is $1 million, the velocity of money is 10, and the price level is 100, what is real GDP?

Using the Fisher effect equation, explain how inflation causes wealth redistribution between lenders and borrowers. Demonstrate with the Fisher effect equation how differences in expected and actual inflation impact actual (or realized) real rates.

Volatile hyperinflation causes financial intermediation to:

Unexpected disinflation will cause the real interest rate to be greater than the equilibrium rate, which will benefit lenders and harm borrowers.

The consumer price index measures the:

If the nominal interest rate is 8% while the inflation rate is 10%, then the real rate of return for lenders is:

Assuming the velocity of money and real GDP are fixed, the quantity theory of money predicts that a 2% increase in the money supply causes a 2%:

When actual inflation is equal to expected inflation:

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

If velocity is constant and the economy's real growth rate is 3%, what rate of money growth will achieve price stability?

If a lender expects an inflation rate of 5% but the inflation rate unexpectedly increases to 7% and if the nominal interest rate was 10%, what is the real rate of interest earned?

Two of the challenging factors faced by the BLS when computing the consumer price index are:

Which of the following measures of inflation is based on a basket of goods and services for a typical household?

If the economy experiences unexpected inflation, then the real interest rate will be _____ than its equilibrium rate, and wealth will be distributed from _____.

The CPI measures the average price of all final goods and services.

All else equal, according to the quantity theory of money, an increase in the velocity of money will cause:

When we examine data from different countries, higher money growth has consistently been associated with:

When changes in nominal prices are confused with changes in real prices, people experience:

In times of financial panic, we expect the velocity of money to:

Monetizing the debt occurs when the government pays off its debts by printing money.

If the money supply is $1 million, the velocity of money is 10, and the price level is 100, what is real GDP?

Using the Fisher effect equation, explain how inflation causes wealth redistribution between lenders and borrowers. Demonstrate with the Fisher effect equation how differences in expected and actual inflation impact actual (or realized) real rates.

Volatile hyperinflation causes financial intermediation to:

Unexpected disinflation will cause the real interest rate to be greater than the equilibrium rate, which will benefit lenders and harm borrowers.

The consumer price index measures the:

If the nominal interest rate is 8% while the inflation rate is 10%, then the real rate of return for lenders is:

Assuming the velocity of money and real GDP are fixed, the quantity theory of money predicts that a 2% increase in the money supply causes a 2%:

When actual inflation is equal to expected inflation:

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

If the economy experiences unexpected inflation, then the real interest rate will be _ than its equilibrium rate, and wealth will be distributed from _.