Question 1

Globalization that allows governments to pursue expansionary policies can be dangerous because it can lead to:

Accepted Answer

A) asset price inflation. 
B) goods price deflation. 
C) goods price inflation. 
D) a reduction in the debt ceiling. 
A) asset price inflation. 
B) goods price deflation. 
C) goods price inflation. 
D) a reduction in the debt ceiling.

Question 2

Asset inflation:

Accepted Answer

A) is equal to goods inflation. 
B) is the rise in the physical increase in assets. 
C) is the rise in asset prices that exceed the rise in the real value of assets. 
D) does not occur when the economy faces globalization because prices are capped. 
A) is equal to goods inflation. 
B) is the rise in the physical increase in assets. 
C) is the rise in asset prices that exceed the rise in the real value of assets. 
D) does not occur when the economy faces globalization because prices are capped.

Question 3

If the velocity of money is about 1.8 and nominal GDP is $14.4 trillion, what is the money supply?

Accepted Answer

A) $1.8 trillion 
B) $8.0 trillion 
C) $14.4 trillion 
D) we cannot compute the money supply from the data given 
A) $1.8 trillion 
B) $8.0 trillion 
C) $14.4 trillion 
D) we cannot compute the money supply from the data given

Question 4

If monetary policy makers want to target a negative interest rate, they

Accepted Answer

A) cannot do so since negative interest rates are impossible. 
B) need to stop inflation before they do it 
C) need to encourage inflation before they do it. 
D) need to stop asset inflation before they do it. 
A) cannot do so since negative interest rates are impossible. 
B) need to stop inflation before they do it 
C) need to encourage inflation before they do it. 
D) need to stop asset inflation before they do it.

Question 5

According to the quantity theory of money, velocity:

Accepted Answer

A) varies substantially with changes in the rate of interest and the expected rate of inflation. 
B) varies with changes in the growth rate of the money supply. 
C) is fairly constant, responding only to changes in the expected rate of inflation. 
D) is virtually constant, responding only to changes in the underlying institutional structure. 
A) varies substantially with changes in the rate of interest and the expected rate of inflation. 
B) varies with changes in the growth rate of the money supply. 
C) is fairly constant, responding only to changes in the expected rate of inflation. 
D) is virtually constant, responding only to changes in the underlying institutional structure.

Question 6

Currently if inflation is 2% and the goods inflation target is 2.5%, policymakers

Accepted Answer

A) congratulate themselves for coming in under their target 
B) are unhappy because they have come in under their target 
C) are indifferent because they don't have an inflation target 
D) are indifferent because they are more interested in asset inflation. 
A) congratulate themselves for coming in under their target 
B) are unhappy because they have come in under their target 
C) are indifferent because they don't have an inflation target 
D) are indifferent because they are more interested in asset inflation.

Question 7

Asset inflation has a danger of:

Accepted Answer

A) obscuring goods inflation. 
B) accommodating contractionary monetary policy. 
C) reducing the productive capacity of assets. 
D) leading to a misallocation of resources to risky investments. 
A) obscuring goods inflation. 
B) accommodating contractionary monetary policy. 
C) reducing the productive capacity of assets. 
D) leading to a misallocation of resources to risky investments.

Question 8

Institutionally focused economists argue:

Accepted Answer

A) the equation of exchange is incorrect. 
B) the equation of exchange should be read from right to left. 
C) the equation of exchange should be read from left to right. 
D) both the quantity theory and the equation of exchange are incorrect. 
A) the equation of exchange is incorrect. 
B) the equation of exchange should be read from right to left. 
C) the equation of exchange should be read from left to right. 
D) both the quantity theory and the equation of exchange are incorrect.

Question 9

If expectations of inflation are greater than actual inflation, the short-run Phillips curve will eventually shift upward.

Accepted Answer

A) True 
 B)False

Question 10

Inflation redistributes income from people who do not raise their prices to people who do raise their prices.

Accepted Answer

A) True 
 B)False

Question 11

If the money supply is 500 and velocity is 6, then nominal GDP:

Accepted Answer

A) is 83.33. 
B) is500. 
C) is3000. 
D) cannot be determined. 
A) is 83.33. 
B) is500. 
C) is3000. 
D) cannot be determined.

Question 12

The quantity theory of money concludes that if real output is constant:

Accepted Answer

A) changes in the price level are caused by changes in the money supply. 
B) real GDP and the money supply are related in the long run. 
C) changes in velocity are proportional to changes in nominal income. 
D) changes in velocity are proportional to changes in the money supply. 
A) changes in the price level are caused by changes in the money supply. 
B) real GDP and the money supply are related in the long run. 
C) changes in velocity are proportional to changes in nominal income. 
D) changes in velocity are proportional to changes in the money supply.

Question 13

Economists who believe in the quantity theory of money argue that:

Accepted Answer

A) the causation in the equation of exchange goes from PQ to MV. 
B) the causation in the equation of exchange goes from MV to PQ. 
C) the causation in the equation of exchange could go either way. 
D) there is no causation in the equation of exchange. 
A) the causation in the equation of exchange goes from PQ to MV. 
B) the causation in the equation of exchange goes from MV to PQ. 
C) the causation in the equation of exchange could go either way. 
D) there is no causation in the equation of exchange.

Question 14

One assumption that changes the equation of exchange into the quantity theory of money is:

Accepted Answer

A) velocity remains constant. 
B) real output varies with the money supply. 
C) expectations change with inflation. 
D) ptimes quantity equals nominal output. 
A) velocity remains constant. 
B) real output varies with the money supply. 
C) expectations change with inflation. 
D) ptimes quantity equals nominal output.

Question 15

If the economy is at point A in the Phillips curve graph shown, what prediction would you make for unemployment in the long run?

Accepted Answer

A) It will increase. 
B) It will decrease. 
C) It will remain constant. 
D) It will explode. 
A) It will increase. 
B) It will decrease. 
C) It will remain constant. 
D) It will explode.

Question 16

If asset prices rise:

Accepted Answer

A) real wealth increases. 
B) productive capacity increases. 
C) inflation increases. 
D) it is unclear whether wealth increases or inflation has occurred. 
A) real wealth increases. 
B) productive capacity increases. 
C) inflation increases. 
D) it is unclear whether wealth increases or inflation has occurred.

Question 17

Suppose you sell surfboards for a living, expect the price of surfboards to increase at the same rate as inflation and adjust prices accordingly.If this does not occur, then it must be true that:

Accepted Answer

A) the price of surfboards is changing at a rate that is different from what was expected. 
B) the inflation rate is different from what was expected. 
C) both the price of surfboards and the inflation rate are different from what was expected. 
D) the relative price of surfboards is changing. 
A) the price of surfboards is changing at a rate that is different from what was expected. 
B) the inflation rate is different from what was expected. 
C) both the price of surfboards and the inflation rate are different from what was expected. 
D) the relative price of surfboards is changing.

Question 18

Velocity can be calculated as the ratio of:

Accepted Answer

A) nominal GDP to real GNP. 
B) nominal GDP to the money supply. 
C) real GDP to the price level. 
D) the money supply to the price level. 
A) nominal GDP to real GNP. 
B) nominal GDP to the money supply. 
C) real GDP to the price level. 
D) the money supply to the price level.

Question 19

According to the quantity theory of money, persistent inflation can only be caused by:

Accepted Answer

A) a low rate of unemployment. 
B) money supply growth that exceeds real GDP growth. 
C) a high rate of unemployment. 
D) a continually growing government deficit. 
A) a low rate of unemployment. 
B) money supply growth that exceeds real GDP growth. 
C) a high rate of unemployment. 
D) a continually growing government deficit.

Question 20

If inflation is highly volatile

Accepted Answer

A) mortgage contracts will likely be more complicated 
B) mortgage contracts will likely be less complicated 
C) there will be no mortgage contracts 
D) there will be no effect on mortgage contracts. 
A) mortgage contracts will likely be more complicated 
B) mortgage contracts will likely be less complicated 
C) there will be no mortgage contracts 
D) there will be no effect on mortgage contracts.

Exam 34: Inflation, Deflation, and Macro Policy

Globalization that allows governments to pursue expansionary policies can be dangerous because it can lead to:

Asset inflation:

If the velocity of money is about 1.8 and nominal GDP is $14.4 trillion, what is the money supply?

If monetary policy makers want to target a negative interest rate, they

According to the quantity theory of money, velocity:

Currently if inflation is 2% and the goods inflation target is 2.5%, policymakers

Asset inflation has a danger of:

Institutionally focused economists argue:

If expectations of inflation are greater than actual inflation, the short-run Phillips curve will eventually shift upward.

Inflation redistributes income from people who do not raise their prices to people who do raise their prices.

If the money supply is 500 and velocity is 6, then nominal GDP:

The quantity theory of money concludes that if real output is constant:

Economists who believe in the quantity theory of money argue that:

One assumption that changes the equation of exchange into the quantity theory of money is:

If the economy is at point A in the Phillips curve graph shown, what prediction would you make for unemployment in the long run?

If asset prices rise:

Suppose you sell surfboards for a living, expect the price of surfboards to increase at the same rate as inflation and adjust prices accordingly.If this does not occur, then it must be true that:

Velocity can be calculated as the ratio of:

According to the quantity theory of money, persistent inflation can only be caused by:

If inflation is highly volatile

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Economic Growth, Business Cycles, and Unemployment

Measuring and Describing the Aggregate Economy

The Keynesian Short-Run Policy Model: Demand-Side Policies

The Classical Long-Run Policy Model: Growth and Supply-Side Policies

The Financial Sector and the Economy

Monetary Policy

Financial Crises, Panics, and Unconventional Monetary Policy

Deficits and Debt: the Austerity Debate

The Fiscal Policy Dilemma

Jobs and Unemployment

International Financial Policy

Macro Policy in a Global Setting

Structural Stagnation and Globalization

Macro Policy in Developing Countries

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