Question 1

A situation in which the price level increases at an extremely high rate is called:

Accepted Answer

A) hyperinflation. 
B) disinflation. 
C) inflation. 
D) stagflation. 
A) hyperinflation. 
B) disinflation. 
C) inflation. 
D) stagflation.

Question 2

A basic rule of thumb to predict inflation is inflation equals:

Accepted Answer

A) real wage increases minus productivity growth. 
B) productivity growth plus nominal wage increases. 
C) productivity growth minus nominal wage increases. 
D) nominal wage increases minus productivity growth. 
A) real wage increases minus productivity growth. 
B) productivity growth plus nominal wage increases. 
C) productivity growth minus nominal wage increases. 
D) nominal wage increases minus productivity growth.

Question 3

If inflation increases unexpectedly, then:

Accepted Answer

A) borrowers tend to lose. 
B) lenders tend to lose. 
C) lenders and borrowers tend to gain. 
D) neither borrowers nor lenders tend to lose. 
A) borrowers tend to lose. 
B) lenders tend to lose. 
C) lenders and borrowers tend to gain. 
D) neither borrowers nor lenders tend to lose.

Question 4

If the velocity of money falls from 1.95 to 1.85, the decline in velocity implies that:

Accepted Answer

A) inflation increases. 
B) inflation decreases. 
C) money stock grows faster than nominal GDP. 
D) money stock grows more slowly than nominal GDP. 
A) inflation increases. 
B) inflation decreases. 
C) money stock grows faster than nominal GDP. 
D) money stock grows more slowly than nominal GDP.

Question 5

The quantity theory of money:

Accepted Answer

A) is no longer relevant. 
B) is relevant in some cases but not others. 
C) has become increasingly irrelevant. 
D) is more relevant today than ever before. 
A) is no longer relevant. 
B) is relevant in some cases but not others. 
C) has become increasingly irrelevant. 
D) is more relevant today than ever before.

Question 6

Because inflation undermines money's unit of account function, government policy will try to keep it:

Accepted Answer

A) at zero. 
B) a low rate 
C) negative 
D) at either a low or a negative rate. 
A) at zero. 
B) a low rate 
C) negative 
D) at either a low or a negative rate.

Question 7

According to the quantity theory of money, if the money supply increases by 12 percent, then in the long run prices go:

Accepted Answer

A) down by 12 percent. 
B) up by less than 12 percent. 
C) up by 12 percent. 
D) up by more than 12 percent. 
A) down by 12 percent. 
B) up by less than 12 percent. 
C) up by 12 percent. 
D) up by more than 12 percent.

Question 8

The Phillips curve represents a relationship between:

Accepted Answer

A) inflation and unemployment. 
B) inflation and real income. 
C) money supply and interest rates. 
D) money supply and unemployment. 
A) inflation and unemployment. 
B) inflation and real income. 
C) money supply and interest rates. 
D) money supply and unemployment.

Question 9

On the short-run Phillips curve, the expectations of inflation:

Accepted Answer

A) are rising. 
B) are falling. 
C) remain constant. 
D) are rising or falling depending on how the economy is performing. 
A) are rising. 
B) are falling. 
C) remain constant. 
D) are rising or falling depending on how the economy is performing.

Question 10

Generally in the United States today, goods inflation

Accepted Answer

A) under 5% is considered acceptable 
B) under 2.5% is considered acceptable 
C) at zero is considered acceptable. 
D) that is negative is preferable 
A) under 5% is considered acceptable 
B) under 2.5% is considered acceptable 
C) at zero is considered acceptable. 
D) that is negative is preferable

Question 11

The problem portrayed by the short-run Phillips curve is that:

Accepted Answer

A) unemployment tends to increase when prices are rising. 
B) changes in the composition of the labor force tend to increase the natural rate of unemployment. 
C) inflation tends to increase when unemployment falls. 
D) stagflation is unavoidable. 
A) unemployment tends to increase when prices are rising. 
B) changes in the composition of the labor force tend to increase the natural rate of unemployment. 
C) inflation tends to increase when unemployment falls. 
D) stagflation is unavoidable.

Question 12

According to the quantity theory:

Accepted Answer

A) unemployment is everywhere and always a monetary phenomenon. 
B) inflation is everywhere and always a monetary phenomenon. 
C) real output is everywhere and always a monetary phenomenon. 
D) the equation of exchange does not hold true. 
A) unemployment is everywhere and always a monetary phenomenon. 
B) inflation is everywhere and always a monetary phenomenon. 
C) real output is everywhere and always a monetary phenomenon. 
D) the equation of exchange does not hold true.

Question 13

One way to measure asset inflation is to:

Accepted Answer

A) multiply the GDP deflator times nominal net worth; if it increases there is asset inflation. 
B) multiply the GDP deflator times real net worth; if it increases there is asset inflation. 
C) divide GDP by nominal net worth; if it increases there is asset inflation. 
D) divide nominal net worth by GDP; if it increases there is asset inflation. 
A) multiply the GDP deflator times nominal net worth; if it increases there is asset inflation. 
B) multiply the GDP deflator times real net worth; if it increases there is asset inflation. 
C) divide GDP by nominal net worth; if it increases there is asset inflation. 
D) divide nominal net worth by GDP; if it increases there is asset inflation.

Question 14

A cost of inflation is that it:

Accepted Answer

A) makes everyone poorer. 
B) makes the poor poorer and the rich richer. 
C) reduces the informational content of prices. 
D) it raises real interest rates. 
A) makes everyone poorer. 
B) makes the poor poorer and the rich richer. 
C) reduces the informational content of prices. 
D) it raises real interest rates.

Question 15

According to the quantity theory of money, if the monetary authorities allow the money supply to grow at a rate of 6 percent in an economy that is growing by 2 percent in real terms, then inflation will be:

Accepted Answer

A) 2 percent. 
B) 4 percent. 
C) 6 percent. 
D) 8 percent. 
A) 2 percent. 
B) 4 percent. 
C) 6 percent. 
D) 8 percent.

Question 16

According to the Phillips curve model, when expectations of inflation increase, the same level of unemployment will be associated with a higher rate of inflation.

Accepted Answer

A) True 
 B)False

Question 17

Economists who accept the quantity theory of money believe that inflation is always and everywhere a monetary phenomenon.

Accepted Answer

A) True 
 B)False

Question 18

Asset price inflation can be a problem because it:

Accepted Answer

A) gives people the illusion that their real wealth has decreased more than it really has. 
B) makes people switch their resources from risky investments to conservative investments. 
C) gives people the illusion that their real wealth has increased more than it really has. 
D) typically increases at the same rate as goods price inflation. 
A) gives people the illusion that their real wealth has decreased more than it really has. 
B) makes people switch their resources from risky investments to conservative investments. 
C) gives people the illusion that their real wealth has increased more than it really has. 
D) typically increases at the same rate as goods price inflation.

Question 19

In a hyperinflation, the economy:

Accepted Answer

A) always collapses. 
B) can continue to function but people are unwilling to hold any money. 
C) can continue to function because people build expected inflation into wages and prices. 
D) will slow on its own to lower inflation. 
A) always collapses. 
B) can continue to function but people are unwilling to hold any money. 
C) can continue to function because people build expected inflation into wages and prices. 
D) will slow on its own to lower inflation.

Question 20

A reason that the quantity theory of money has lost favor is that:

Accepted Answer

A) it did not predict the asset price inflation. 
B) the velocity of money is not constant. 
C) banks no longer hold reserves. 
D) the federal funds market has been taken over by the Federal Reserve bank. 
A) it did not predict the asset price inflation. 
B) the velocity of money is not constant. 
C) banks no longer hold reserves. 
D) the federal funds market has been taken over by the Federal Reserve bank.

Exam 34: Inflation, Deflation, and Macro Policy

A situation in which the price level increases at an extremely high rate is called:

A basic rule of thumb to predict inflation is inflation equals:

If inflation increases unexpectedly, then:

If the velocity of money falls from 1.95 to 1.85, the decline in velocity implies that:

The quantity theory of money:

Because inflation undermines money's unit of account function, government policy will try to keep it:

According to the quantity theory of money, if the money supply increases by 12 percent, then in the long run prices go:

The Phillips curve represents a relationship between:

On the short-run Phillips curve, the expectations of inflation:

Generally in the United States today, goods inflation

The problem portrayed by the short-run Phillips curve is that:

According to the quantity theory:

One way to measure asset inflation is to:

A cost of inflation is that it:

According to the quantity theory of money, if the monetary authorities allow the money supply to grow at a rate of 6 percent in an economy that is growing by 2 percent in real terms, then inflation will be:

According to the Phillips curve model, when expectations of inflation increase, the same level of unemployment will be associated with a higher rate of inflation.

Economists who accept the quantity theory of money believe that inflation is always and everywhere a monetary phenomenon.

Asset price inflation can be a problem because it:

In a hyperinflation, the economy:

A reason that the quantity theory of money has lost favor is that:

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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