Question 1

Which of the following correctly represents unexpected disinflation?

Accepted Answer

A)  E$\pi$ >$\pi$ 
B)  E$\pi$ i 
A)  E$\pi$ >$\pi$ 
B)  E$\pi$ i

Question 2

A decrease in the inflation rate from 10% to 3% implies that disinflation has occurred.

Accepted Answer

A) True 
 B)False

Question 3

If you earned $10-an-hour in 2005 when the CPI was 100, and you earn $11-an-hour today when the CPI is 120, then your real wage rate has _____ since 2005.

Accepted Answer

A)  increased 20% 
B)  remained the same 
C)  decreased 
D)  increased 10% 
A)  increased 20% 
B)  remained the same 
C)  decreased 
D)  increased 10%

Question 4

Suppose the Consumer Price Index in 1987 is 428 with a base year of 1967. What does this tell us about prices in 1987?

Accepted Answer

It tells us that prices in 198

Question 5

Table: Interest Rates and Inflation $$\begin{array} { l c c c c } 
\hline \text { Year } & \text { Expected } \boldsymbol { \pi } & \text { Actual } \boldsymbol { \pi } & \text { Nominal Interest Rate } & \begin{array} { c } 
\text { Realized Real } \
\text { Interest Rate }
\end{array} \
\hline 2006 & 2 \% & 3 \% & 3 \% & \% \
2007 & 1 \% & 3 \% & 2 \% & \% \
2008 & 2 \% & 3 \% & 4 \% & \% \
2009 & 7 \% & 5 \% & 9 \% & \% \
\hline
\end{array}$$ 
This table shows inflation and interest rate data on loan contracts in different years. 
A) Fill in the "Realized Real Interest Rate" column in the table.
B) In which year(s) were the actual real interest rates on loan contracts negative?
C) In which year(s) did lenders gain at the expense of borrowers?
D) In which year(s) did borrowers gain at the expense of lenders?

Accepted Answer

A) The completed table is here: @#IMG-DLM& B) 2007

Question 6

Although money is neutral in the short run, it's possible that changes in money supply can change real GDP in the long run.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is NOT a cost of inflation?

Accepted Answer

A)  price confusion 
B)  declining wages 
C)  money illusion 
D)  inflation tax 
A)  price confusion 
B)  declining wages 
C)  money illusion 
D)  inflation tax

Question 8

Which index measures price increases that typical American consumers face when shopping?

Accepted Answer

A)  CPI 
B)  PPI 
C)  GDP deflator 
D)  GDP inflator 
A)  CPI 
B)  PPI 
C)  GDP deflator 
D)  GDP inflator

Question 9

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

Accepted Answer

A)  result in lower velocity. 
B)  are impossible because the money supply must also be fixed. 
C)  must cause decreases in the price level. 
D)  must cause increases in the price level. 
A)  result in lower velocity. 
B)  are impossible because the money supply must also be fixed. 
C)  must cause decreases in the price level. 
D)  must cause increases in the price level.

Question 10

If the price level is 134 in 2008 and 149 in 2009, what is the inflation rate over this period?

Accepted Answer

[(149 - 134) ÷ 134]

Question 11

In the long run, money:

Accepted Answer

A)  always increases real GDP. 
B)  will not affect prices. 
C)  will lift the standard of living for everyone in a nation. 
D)  is neutral with respect to quantity produced. 
A)  always increases real GDP. 
B)  will not affect prices. 
C)  will lift the standard of living for everyone in a nation. 
D)  is neutral with respect to quantity produced.

Question 12

The Fisher effect predicts that the nominal interest rate:

Accepted Answer

A)  rises as the expected inflation rate rises. 
B)  falls as the expected inflation rate rises. 
C)  remains the same as the expected inflation rate changes. 
D)  changes only if the unexpected inflation rate changes, but not with the expected inflation rate. 
A)  rises as the expected inflation rate rises. 
B)  falls as the expected inflation rate rises. 
C)  remains the same as the expected inflation rate changes. 
D)  changes only if the unexpected inflation rate changes, but not with the expected inflation rate.

Question 13

If the growth rate of the money supply decreases from 10% to 5%, which of the following is a prediction of the quantity theory of money?

Accepted Answer

A)  disinflation 
B)  deflation 
C)  hyperinflation 
D)  money illusion 
A)  disinflation 
B)  deflation 
C)  hyperinflation 
D)  money illusion

Question 14

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 2007 to 2008?

Accepted Answer

A)  8.00% 
B)  21.53% 
C)  3.86% 
D)  3.72% 
A)  8.00% 
B)  21.53% 
C)  3.86% 
D)  3.72%

Question 15

Explain why periods of high inflation but low growth in output are so difficult for policy makers to deal with.

Accepted Answer

Periods of high inflation and low output

Question 16

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

Accepted Answer

A)  are impossible because real GDP must also be fixed. 
B)  cause the money supply, the velocity of money, and the price level to increase together. 
C)  cause the money supply, the velocity of money, and the price level to decrease together. 
D)  occur without changes in the other variables. 
A)  are impossible because real GDP must also be fixed. 
B)  cause the money supply, the velocity of money, and the price level to increase together. 
C)  cause the money supply, the velocity of money, and the price level to decrease together. 
D)  occur without changes in the other variables.

Question 17

The quantity theory of money predicts that if the money supply doubles, the price level will also double.

Accepted Answer

A) True 
 B)False

Question 18

Between 1960 and 1990, Argentina's money supply grew at approximately 80%. According to the quantity theory of money, inflation rates in Argentina should have been approximately _____ during this period.

Accepted Answer

A)  20% 
B)  40% 
C)  80% 
D)  160% 
A)  20% 
B)  40% 
C)  80% 
D)  160%

Question 19

The quantity theory of money is a theory of:

Accepted Answer

A)  money growth in the United States. 
B)  inflation. 
C)  economic growth. 
D)  the growth of tax burdens. 
A)  money growth in the United States. 
B)  inflation. 
C)  economic growth. 
D)  the growth of tax burdens.

Question 20

The price level at the end of 2011 minus the price level at the end of 2010 is the _____ for the year 2011.

Accepted Answer

A)  inflation rate 
B)  change in the price level 
C)  change in gross national product 
D)  consumer price index 
A)  inflation rate 
B)  change in the price level 
C)  change in gross national product 
D)  consumer price index

Which of the following correctly represents unexpected disinflation?

A decrease in the inflation rate from 10% to 3% implies that disinflation has occurred.

If you earned $10-an-hour in 2005 when the CPI was 100, and you earn $11-an-hour today when the CPI is 120, then your real wage rate has _____ since 2005.

Suppose the Consumer Price Index in 1987 is 428 with a base year of 1967. What does this tell us about prices in 1987?

Although money is neutral in the short run, it's possible that changes in money supply can change real GDP in the long run.

Which of the following is NOT a cost of inflation?

Which index measures price increases that typical American consumers face when shopping?

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

If the price level is 134 in 2008 and 149 in 2009, what is the inflation rate over this period?

In the long run, money:

The Fisher effect predicts that the nominal interest rate:

If the growth rate of the money supply decreases from 10% to 5%, which of the following is a prediction of the quantity theory of money?

Explain why periods of high inflation but low growth in output are so difficult for policy makers to deal with.

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

The quantity theory of money predicts that if the money supply doubles, the price level will also double.

Between 1960 and 1990, Argentina's money supply grew at approximately 80%. According to the quantity theory of money, inflation rates in Argentina should have been approximately _____ during this period.

The quantity theory of money is a theory of:

The price level at the end of 2011 minus the price level at the end of 2010 is the _____ for the year 2011.

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 correctly represents unexpected disinflation?

A decrease in the inflation rate from 10% to 3% implies that disinflation has occurred.

If you earned $10-an-hour in 2005 when the CPI was 100, and you earn $11-an-hour today when the CPI is 120, then your real wage rate has _____ since 2005.

Suppose the Consumer Price Index in 1987 is 428 with a base year of 1967. What does this tell us about prices in 1987?

Although money is neutral in the short run, it's possible that changes in money supply can change real GDP in the long run.

Which of the following is NOT a cost of inflation?

Which index measures price increases that typical American consumers face when shopping?

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

If the price level is 134 in 2008 and 149 in 2009, what is the inflation rate over this period?

In the long run, money:

The Fisher effect predicts that the nominal interest rate:

If the growth rate of the money supply decreases from 10% to 5%, which of the following is a prediction of the quantity theory of money?

Explain why periods of high inflation but low growth in output are so difficult for policy makers to deal with.

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

The quantity theory of money predicts that if the money supply doubles, the price level will also double.

Between 1960 and 1990, Argentina's money supply grew at approximately 80%. According to the quantity theory of money, inflation rates in Argentina should have been approximately _____ during this period.

The quantity theory of money is a theory of:

The price level at the end of 2011 minus the price level at the end of 2010 is the _____ for the year 2011.

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