Question 1

Which of the following is a problem with deflation?

Accepted Answer

A)  It raises the real cost of debt repayment. 
B)  Stopping it will cause a recession. 
C)  It causes people to pay more taxes. 
D)  There is no problem with deflation; falling prices are good for the economy. 
A)  It raises the real cost of debt repayment. 
B)  Stopping it will cause a recession. 
C)  It causes people to pay more taxes. 
D)  There is no problem with deflation; falling prices are good for the economy.

Question 2

In a small economy, the rate of money growth for the current year is 2%. Velocity of money circulation is stable. Inflation is expected to be about 1.5% over the current year. What is the short-run economic growth rate?

Accepted Answer

A)  3.5% 
B)  1.5% 
C)  0.5% 
D)  2% 
A)  3.5% 
B)  1.5% 
C)  0.5% 
D)  2%

Question 3

According to the quantity theory of money, the major cause of inflation in the long run is an increase in:

Accepted Answer

A)  the standard of living. 
B)  the velocity of money. 
C)  the growth rate of real GDP. 
D)  the growth rate of the money supply. 
A)  the standard of living. 
B)  the velocity of money. 
C)  the growth rate of real GDP. 
D)  the growth rate of the money supply.

Question 4

Why does volatility in the inflation rate make it harder for businesses to get loans?

Accepted Answer

Volatility in the inflation rate makes i

Question 5

When people suffer from money illusion, an increase in the money supply:

Accepted Answer

A)  raises real GDP in the short run. 
B)  lowers real GDP in the short run. 
C)  has no effect on real GDP in the short run but raises real GDP in the long run. 
D)  lowers real GDP in the long run. 
A)  raises real GDP in the short run. 
B)  lowers real GDP in the short run. 
C)  has no effect on real GDP in the short run but raises real GDP in the long run. 
D)  lowers real GDP in the long run.

Question 6

Wealth will be redistributed from borrowers to lenders when expected inflation is less than actual inflation.

Accepted Answer

A) True 
 B)False

Question 7

What country had the highest inflation rate from 2002-2007?

Accepted Answer

A)  Angola 
B)  China 
C)  Japan 
D)  Zimbabwe 
A)  Angola 
B)  China 
C)  Japan 
D)  Zimbabwe

Question 8

One of the major problems associated with hyperinflation is the increased uncertainty associated with long-term contracts.

Accepted Answer

A) True 
 B)False

Question 9

The primary reason we think of inflation as bad even when wages rise with it is that it:

Accepted Answer

A)  makes things more expensive for consumers. 
B)  leads to lower real wages. 
C)  distorts the information delivered by prices. 
D)  increases the velocity of money. 
A)  makes things more expensive for consumers. 
B)  leads to lower real wages. 
C)  distorts the information delivered by prices. 
D)  increases the velocity of money.

Question 10

The Fisher effect is the tendency of nominal interest rates to rise with expected inflation rates.

Accepted Answer

A) True 
 B)False

Question 11

An assumption of the quantity theory of money is that the velocity of money:

Accepted Answer

A)  remains relatively constant. 
B)  rises with increases in the money supply. 
C)  rises with increases in real GDP. 
D)  rises with increases in the price level. 
A)  remains relatively constant. 
B)  rises with increases in the money supply. 
C)  rises with increases in real GDP. 
D)  rises with increases in the price level.

Question 12

In the equation Mv = PYR, M stands for:

Accepted Answer

A)  the multiplier. 
B)  inflation. 
C)  the money supply. 
D)  murder. 
A)  the multiplier. 
B)  inflation. 
C)  the money supply. 
D)  murder.

Question 13

To compare accurately the price of automobiles in 1950 and in 2010, we would need to calculate the real price of automobiles in 1950 and in 2010.

Accepted Answer

A) True 
 B)False

Question 14

The Consumer Price Index (CPI) measures the average price for a basket of goods and services bought by a typical American consumer.

Accepted Answer

A) True 
 B)False

Question 15

When expected inflation is less than actual inflation, inflation causes wealth redistribution from lenders to borrowers.

Accepted Answer

A) True 
 B)False

Question 16

Table: CPI Schedule $$\begin{array} { l l c } 
\hline & & \text { Inflation } \
\text { Year } & \text { CPI } & \text { Rate } \
\hline 1998 & 117 & \
1999 & 121 & \text { A } \
2000 & 130 & \text { B } \
2001 & 127 & \text { C } \
2002 & 131 & \text { D } \
\hline
\end{array}$$ 
Use the end-of-year CPI values shown in the table to answer the following questions. 
A) Calculate the inflation rate for the cells marked A-D in the table.
B) In which year did this economy experience deflation?
C) In which year did this economy experience the lowest level of inflation?

Accepted Answer

A) The completed tab

Question 17

For a given nominal interest rate, an increase in deflation will cause the real rate of interest 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 18

If the money supply and the velocity of money are fixed, then increases in real GDP:

Accepted Answer

A)  are impossible because real GDP must also be fixed. 
B)  cause increases in the price level. 
C)  cause decreases in the price level. 
D)  occur without changes in the price level. 
A)  are impossible because real GDP must also be fixed. 
B)  cause increases in the price level. 
C)  cause decreases in the price level. 
D)  occur without changes in the price level.

Question 19

According to the quantity theory of money, the velocity of money equals the amount of money people spend divided by the product of the price level and the quantity of goods and services they purchase.

Accepted Answer

A) True 
 B)False

Question 20

In a small economy, the money supply is $400,000, and the velocity of money is 3. The current average price level in the economy is 1. What is the level of real GDP in this economy?

Accepted Answer

A)  $1.2 million 
B)  $1.6 million 
C)  $400,000 
D)  $133,333 
A)  $1.2 million 
B)  $1.6 million 
C)  $400,000 
D)  $133,333

Which of the following is a problem with deflation?

In a small economy, the rate of money growth for the current year is 2%. Velocity of money circulation is stable. Inflation is expected to be about 1.5% over the current year. What is the short-run economic growth rate?

According to the quantity theory of money, the major cause of inflation in the long run is an increase in:

Why does volatility in the inflation rate make it harder for businesses to get loans?

When people suffer from money illusion, an increase in the money supply:

Wealth will be redistributed from borrowers to lenders when expected inflation is less than actual inflation.

What country had the highest inflation rate from 2002-2007?

One of the major problems associated with hyperinflation is the increased uncertainty associated with long-term contracts.

The primary reason we think of inflation as bad even when wages rise with it is that it:

The Fisher effect is the tendency of nominal interest rates to rise with expected inflation rates.

An assumption of the quantity theory of money is that the velocity of money:

In the equation Mv = PY_R, M stands for:

To compare accurately the price of automobiles in 1950 and in 2010, we would need to calculate the real price of automobiles in 1950 and in 2010.

The Consumer Price Index (CPI) measures the average price for a basket of goods and services bought by a typical American consumer.

When expected inflation is less than actual inflation, inflation causes wealth redistribution from lenders to borrowers.

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

If the money supply and the velocity of money are fixed, then increases in real GDP:

According to the quantity theory of money, the velocity of money equals the amount of money people spend divided by the product of the price level and the quantity of goods and services they purchase.

In a small economy, the money supply is $400,000, and the velocity of money is 3. The current average price level in the economy is 1. What is the level of real GDP in this economy?

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

Which of the following is a problem with deflation?

In a small economy, the rate of money growth for the current year is 2%. Velocity of money circulation is stable. Inflation is expected to be about 1.5% over the current year. What is the short-run economic growth rate?

According to the quantity theory of money, the major cause of inflation in the long run is an increase in:

Why does volatility in the inflation rate make it harder for businesses to get loans?

When people suffer from money illusion, an increase in the money supply:

Wealth will be redistributed from borrowers to lenders when expected inflation is less than actual inflation.

What country had the highest inflation rate from 2002-2007?

One of the major problems associated with hyperinflation is the increased uncertainty associated with long-term contracts.

The primary reason we think of inflation as bad even when wages rise with it is that it:

The Fisher effect is the tendency of nominal interest rates to rise with expected inflation rates.

An assumption of the quantity theory of money is that the velocity of money:

In the equation Mv = PYR, M stands for:

To compare accurately the price of automobiles in 1950 and in 2010, we would need to calculate the real price of automobiles in 1950 and in 2010.

The Consumer Price Index (CPI) measures the average price for a basket of goods and services bought by a typical American consumer.

When expected inflation is less than actual inflation, inflation causes wealth redistribution from lenders to borrowers.

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

If the money supply and the velocity of money are fixed, then increases in real GDP:

According to the quantity theory of money, the velocity of money equals the amount of money people spend divided by the product of the price level and the quantity of goods and services they purchase.

In a small economy, the money supply is $400,000, and the velocity of money is 3. The current average price level in the economy is 1. What is the level of real GDP in this economy?

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, M stands for: