Question 1

Which of the following goods' prices are not considered when calculating core inflation?

Accepted Answer

A) food 
B) housing 
C) clothing 
D) All of these are necessities and are therefore not considered. 
A) food 
B) housing 
C) clothing 
D) All of these are necessities and are therefore not considered.

Question 2

The aggregate price level is:

Accepted Answer

A) a measure of the average price level for GDP. 
B) measured by the CPI. 
C) measured by the GDP price deflator. 
D) All of these statements are true. 
A) a measure of the average price level for GDP. 
B) measured by the CPI. 
C) measured by the GDP price deflator. 
D) All of these statements are true.

Question 3

Tax distortions happen because tax laws take into consideration only:

Accepted Answer

A) nominal income. 
B) real income. 
C) nominal output. 
D) real output. 
A) nominal income. 
B) real income. 
C) nominal output. 
D) real output.

Question 4

The notion that the value of money is determined by the overall quantity of money in existence is known as:

Accepted Answer

A) the quantity theory of money. 
B) the money quantity theory. 
C) the price level theory. 
D) the level theory of prices. 
A) the quantity theory of money. 
B) the money quantity theory. 
C) the price level theory. 
D) the level theory of prices.

Question 5

The constant velocity of money in the quantity equation implies that any increase in the money supply has to lead directly to:

Accepted Answer

A) an increase in P. 
B) an increase in V. 
C) an increase in Y. 
D) a decrease in P. 
A) an increase in P. 
B) an increase in V. 
C) an increase in Y. 
D) a decrease in P.

Question 6

When we consider our savings,interest rates _________ and inflation rates ___________ the value.

Accepted Answer

A) increase;decrease 
B) decrease;increase 
C) increase;increase 
D) have no real effect;decrease 
A) increase;decrease 
B) decrease;increase 
C) increase;increase 
D) have no real effect;decrease

Question 7

If the nominal interest rate is higher than the real interest rate,then inflation must be:

Accepted Answer

A) zero. 
B) higher than the nominal rate of interest. 
C) lower than the nominal rate of interest. 
D) negative. 
A) zero. 
B) higher than the nominal rate of interest. 
C) lower than the nominal rate of interest. 
D) negative.

Question 8

When a central bank aggressively tries to contain inflation via contractionary monetary policy,which condition is most likely to occur?

Accepted Answer

A) Disinflation 
B) Inflation 
C) Deflation 
D) Underinflation 
A) Disinflation 
B) Inflation 
C) Deflation 
D) Underinflation

Question 9

The Phillips Curve depicts that,in general:

Accepted Answer

A) high amounts of unemployment in an economy will coincide with low inflation. 
B) low amounts of unemployment in an economy will coincide with low inflation. 
C) high amounts of unemployment in an economy will coincide with high inflation. 
D) None of these statements is true. 
A) high amounts of unemployment in an economy will coincide with low inflation. 
B) low amounts of unemployment in an economy will coincide with low inflation. 
C) high amounts of unemployment in an economy will coincide with high inflation. 
D) None of these statements is true.

Question 10

If an economy produces 4,000 units of output with a price level of $2 and with a velocity of money of 8,we know that the money supply must be:

Accepted Answer

A) $1,000. 
B) $8,000. 
C) $2,000. 
D) $4,000. 
A) $1,000. 
B) $8,000. 
C) $2,000. 
D) $4,000.

Question 11

The classical theory of inflation:

Accepted Answer

A) describes a long-run equilibrium. 
B) explains the direct relationship between money supply and the price level. 
C) shows neutrality of money in the long run. 
D) All of these statements are true. 
A) describes a long-run equilibrium. 
B) explains the direct relationship between money supply and the price level. 
C) shows neutrality of money in the long run. 
D) All of these statements are true.

Question 12

According to the quantity theory of money,if there are fewer dollars available to spend on the same number of goods and services,then:

Accepted Answer

A) the price level will fall. 
B) the price level will rise. 
C) output will decrease. 
D) output will increase. 
A) the price level will fall. 
B) the price level will rise. 
C) output will decrease. 
D) output will increase.

Question 13

When the economy is experiencing a negative output gap:

Accepted Answer

A) some people and some capital are unemployed. 
B) the economy may be in a recession. 
C) there is little inflationary pressure due to low demand. 
D) All of these statements are true. 
A) some people and some capital are unemployed. 
B) the economy may be in a recession. 
C) there is little inflationary pressure due to low demand. 
D) All of these statements are true.

Question 14

An overall fall in prices in the economy is called:

Accepted Answer

A) inflation. 
B) deflation. 
C) core inflation. 
D) core deflation. 
A) inflation. 
B) deflation. 
C) core inflation. 
D) core deflation.

Question 15

The lowest possible unemployment rate that will not cause the inflation rate to increase is called:

Accepted Answer

A) the nonaccelerating inflation rate of unemployment (NAIRU). 
B) the natural rate of unemployment. 
C) "full employment." 
D) All of these statements are true. 
A) the nonaccelerating inflation rate of unemployment (NAIRU). 
B) the natural rate of unemployment. 
C) "full employment." 
D) All of these statements are true.

Question 16

The Phillips Curve will shift because of:

Accepted Answer

A) expected inflation. 
B) normal inflation. 
C) hyperinflation. 
D) None of these statements is true. 
A) expected inflation. 
B) normal inflation. 
C) hyperinflation. 
D) None of these statements is true.

Question 17

Menu costs refer to:

Accepted Answer

A) the money,time,and opportunity used to change prices to keep pace with inflation. 
B) the time,money,and effort one has to spend managing cash in the face of inflation. 
C) being penalized via taxes for making more money in dollars,even though real purchasing power hasn't changed at all. 
D) None of these statements is true. 
A) the money,time,and opportunity used to change prices to keep pace with inflation. 
B) the time,money,and effort one has to spend managing cash in the face of inflation. 
C) being penalized via taxes for making more money in dollars,even though real purchasing power hasn't changed at all. 
D) None of these statements is true.

Question 18

More recently,the velocity of money was:

Accepted Answer

A) higher during the housing boom and lower during the recession that followed. 
B) lower during the housing boom and higher during the recession that followed. 
C) consistently higher than the historical trend since the mid 1980s. 
D) consistently lower than the historical trend since the early 1990s. 
A) higher during the housing boom and lower during the recession that followed. 
B) lower during the housing boom and higher during the recession that followed. 
C) consistently higher than the historical trend since the mid 1980s. 
D) consistently lower than the historical trend since the early 1990s.

Question 19

If the value of your savings is increasing over time,we know that:

Accepted Answer

A) the real rate of interest is positive. 
B) the nominal rate of interest must be at least as big as the real rate of interest. 
C) the inflation rate must be lower than the nominal rate of interest. 
D) All of these statements are true. 
A) the real rate of interest is positive. 
B) the nominal rate of interest must be at least as big as the real rate of interest. 
C) the inflation rate must be lower than the nominal rate of interest. 
D) All of these statements are true.

Question 20

Most economists agree that modest inflation is desirable over zero inflation because:

Accepted Answer

A) it helps firms to more easily adjust real wages. 
B) it allows a margin of error for those deciding on the money supply. 
C) it allows the Fed to more easily engage in expansionary monetary policy. 
D) All of these statements are true. 
A) it helps firms to more easily adjust real wages. 
B) it allows a margin of error for those deciding on the money supply. 
C) it allows the Fed to more easily engage in expansionary monetary policy. 
D) All of these statements are true.

Exam 32: Inflation

Which of the following goods' prices are not considered when calculating core inflation?

The aggregate price level is:

Tax distortions happen because tax laws take into consideration only:

The notion that the value of money is determined by the overall quantity of money in existence is known as:

The constant velocity of money in the quantity equation implies that any increase in the money supply has to lead directly to:

When we consider our savings,interest rates _________ and inflation rates ___________ the value.

If the nominal interest rate is higher than the real interest rate,then inflation must be:

When a central bank aggressively tries to contain inflation via contractionary monetary policy,which condition is most likely to occur?

The Phillips Curve depicts that,in general:

If an economy produces 4,000 units of output with a price level of $2 and with a velocity of money of 8,we know that the money supply must be:

The classical theory of inflation:

According to the quantity theory of money,if there are fewer dollars available to spend on the same number of goods and services,then:

When the economy is experiencing a negative output gap:

An overall fall in prices in the economy is called:

The lowest possible unemployment rate that will not cause the inflation rate to increase is called:

The Phillips Curve will shift because of:

Menu costs refer to:

More recently,the velocity of money was:

If the value of your savings is increasing over time,we know that:

Most economists agree that modest inflation is desirable over zero inflation because:

Economics and Life

Specialization and Exchange

Markets

Elasticity

Efficiency

Government Intervention

Consumer Behavior

Behavioral Economics: A Closer Look at Decision Making

Game Theory and Strategic Thinking

Information

Time and Uncertainty

The Costs of Production

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

The Factors of Production

International Trade

Externalities

Public Goods and Common Resources

Taxation and the Public Budget

Poverty, Inequality, and Discrimination

Political Choices

Public Policy and Choice Architecture

Measuring the Wealth of Nations

The Cost of Living

Economic Growth

Unemployment and the Demand for Labor

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Basics of Finance

Money and the Monetary System

Financial Crisis

Open-Market Macroeconomics

Development Economics

Filters

When we consider our savings,interest rates _ and inflation rates ___ the value.