Exam 12: Inflation and the Quantity Theory of Money

Use the following to answer questions: Table: Inflation in Poland Year Inflation Rate (Annual \% Change) 1985 15.1\% 1990 585.8\% 1999 7.3\% 2002 1.9\% 2003 0.8\% Source: International Monetary Fund (www.imf.org) -(Table: Inflation in Poland) This table shows actual inflation data for different periods in Poland. Which year was hyperinflationary?

According to the Fisher effect, the nominal interest rate will:

Deflation is a decrease in the:

Negative real interest rates among developing countries result when they print too little money.

When economists state that "money is neutral," they mean that the:

A bank lends money for a year at an interest rate of 7%, and the inflation rate for that year turns out to be 5%. What is the bank's real rate of return for that year?

Approximately how many prices of goods and services are measured by the CPI?

Suppose that you are buying your first home. Current interest rates on a 30-year fixed-rate mortgage are 5%. Lenders expect an inflation rate of 2% over the next 30 years, thus giving them an expected real return of 3%. If actual inflation over the next 30 years is 4% because of a continued rapid expansion of the money supply, would you be better off or worse off by taking out a 30-year fixed-rate mortgage?

According to the quantity theory of money, an increase in the money supply will cause the price level to:

Inflation is painful to stop because stopping it:

Sustained inflation tends to increase nominal wages.

A measure of the average price received by suppliers is the:

If, in an economic panic, people decide to hold their money rather than spend it, the velocity of money will:

Use the quantity theory of money to explain how an increase in the money supply leads to an increase in the price level.

According to the quantity theory of money, the primary cause of inflation is an increase in real GDP.

A decrease in the inflation rate from 10% to 3% implies that average price level has declined.

Suppose nominal GDP for a country in year 1 is $5 billion, but it increases to $10 billion in year 2. If the GDP deflator was 60 in year 1 and rose to 100 in year 2, in which year did this country produce more goods and services overall?

In the long run, the quantity theory of money says that the growth rate of the money supply will be approximately equal to the:

Use the following to answer questions: Table: Consumer Price Index Year CPI (End-of-Yea r Value) 2005 195.3 2006 201.6 2007 207.3 2008 215.3 2009 214.5 2010 218.1 -(Table: Consumer Price Index) Refer to the CPI values in the table for the years 2005 to 2010. In which year(s) did the country experience disinflation?

Inflation tends to benefit: