Question 1

Inflation

Accepted Answer

A) causes people to spend more time reducing money balances.When inflation is unexpectedly high it redistributes wealth from lenders to borrowers. 
B) causes people to spend more time reducing money balances.When inflation is unexpectedly high it redistributes wealth from borrowers to lenders. 
C) causes people to spend less time reducing money balances.When inflation is unexpectedly high it redistributes wealth from lenders to borrowers. 
D) causes people to spend less time reducing money balances.When inflation is unexpectedly high it redistributes wealth from borrowers to lenders. 
A) causes people to spend more time reducing money balances.When inflation is unexpectedly high it redistributes wealth from lenders to borrowers. 
B) causes people to spend more time reducing money balances.When inflation is unexpectedly high it redistributes wealth from borrowers to lenders. 
C) causes people to spend less time reducing money balances.When inflation is unexpectedly high it redistributes wealth from lenders to borrowers. 
D) causes people to spend less time reducing money balances.When inflation is unexpectedly high it redistributes wealth from borrowers to lenders. A

Question 2

If a central bank were required to target inflation at zero,then when there was a negative aggregate supply shock the central bank

Accepted Answer

A) would have to increase the money supply.This would move unemployment closer to the natural rate. 
B) would have to increase the money supply.This would move unemployment further from the natural rate. 
C) would have to decrease the money supply.This would move unemployment closer to the natural rate. 
D) would have to decrease the money supply.This would move unemployment further from the natural rate. 
A) would have to increase the money supply.This would move unemployment closer to the natural rate. 
B) would have to increase the money supply.This would move unemployment further from the natural rate. 
C) would have to decrease the money supply.This would move unemployment closer to the natural rate. 
D) would have to decrease the money supply.This would move unemployment further from the natural rate. D

Question 3

A permanent reduction in inflation would

Accepted Answer

A) permanently reduce shoeleather costs and permanently lower unemployment 
B) permanently reduce shoeleather costs and temporarily raise unemployment 
C) temporarily reduce shoeleather costs and temporarily lower unemployment 
D) temporarily reduce shoeleather costs and temporarily raise unemployment 
A) permanently reduce shoeleather costs and permanently lower unemployment 
B) permanently reduce shoeleather costs and temporarily raise unemployment 
C) temporarily reduce shoeleather costs and temporarily lower unemployment 
D) temporarily reduce shoeleather costs and temporarily raise unemployment B

Question 4

If a central bank were required to target inflation at zero,then when there was a positive aggregate supply shock the central bank

Accepted Answer

A) would have to increase the interest rate.This would move unemployment closer to the natural rate. 
B) would have to increase the interest rate.This would move unemployment further from the natural rate. 
C) would have to decrease the interest rate.This would move unemployment closer to the natural rate. 
D) would have to decrease the interest rate.This would move unemployment further from the natural rate. 
A) would have to increase the interest rate.This would move unemployment closer to the natural rate. 
B) would have to increase the interest rate.This would move unemployment further from the natural rate. 
C) would have to decrease the interest rate.This would move unemployment closer to the natural rate. 
D) would have to decrease the interest rate.This would move unemployment further from the natural rate.

Question 5

Using the typical estimate of the sacrifice ratio,how much output would be lost in reducing inflation from 3% to 1%?

Accepted Answer

A) 5% 
B) 10% 
C) 15% 
D) 20% 
A) 5% 
B) 10% 
C) 15% 
D) 20%

Question 6

If inflation were reduced,then it is

Accepted Answer

A) likely that real incomes would rise more rapidly and labor markets would be more flexible. 
B) likely that real incomes would rise more rapidly but unlikely that labor markets would be more flexible. 
C) likely that labor markets would be more flexible but unlikely that real incomes would rise more rapidly. 
D) unlikely that real incomes would rise more rapidly and unlikely that labor markets would be more flexible. 
A) likely that real incomes would rise more rapidly and labor markets would be more flexible. 
B) likely that real incomes would rise more rapidly but unlikely that labor markets would be more flexible. 
C) likely that labor markets would be more flexible but unlikely that real incomes would rise more rapidly. 
D) unlikely that real incomes would rise more rapidly and unlikely that labor markets would be more flexible.

Question 7

Economists

Accepted Answer

A) agree that the costs of moderate inflation are low and that the cost of reducing inflation is small. 
B) agree that the costs of moderate inflation are low,but disagree about the cost of reducing inflation. 
C) disagree about the costs of moderate inflation,but agree that the cost of reducing inflation is small. 
D) disagree about the costs of moderate inflation and disagree about the cost of reducing inflation. 
A) agree that the costs of moderate inflation are low and that the cost of reducing inflation is small. 
B) agree that the costs of moderate inflation are low,but disagree about the cost of reducing inflation. 
C) disagree about the costs of moderate inflation,but agree that the cost of reducing inflation is small. 
D) disagree about the costs of moderate inflation and disagree about the cost of reducing inflation.

Question 8

Paul Volcker's inflation reduction efforts

Accepted Answer

A) failed to reduce inflation. 
B) failed to reduce expected inflation. 
C) resulted in the highest unemployment rate since the Great Depression. 
D) none of the above are correct. 
A) failed to reduce inflation. 
B) failed to reduce expected inflation. 
C) resulted in the highest unemployment rate since the Great Depression. 
D) none of the above are correct.

Question 9

A reduction in inflation would lead to

Accepted Answer

A) more frequent price changes and increased variability of relative prices. 
B) more frequent price changes and decreased variability of relative prices. 
C) less frequent price changes and increased variability of relative prices. 
D) less frequent price changes and decreased variability of relative prices. 
A) more frequent price changes and increased variability of relative prices. 
B) more frequent price changes and decreased variability of relative prices. 
C) less frequent price changes and increased variability of relative prices. 
D) less frequent price changes and decreased variability of relative prices.

Question 10

An added benefit of inflation is that it allows for the possibility of

Accepted Answer

A) menu costs. 
B) aggregate supply shocks. 
C) negative real interest rates. 
D) recessions. 
A) menu costs. 
B) aggregate supply shocks. 
C) negative real interest rates. 
D) recessions.

Question 11

An individual would suffer lower losses from an unexpectedly higher inflation rate if

Accepted Answer

A) she held much currency and owned few bonds. 
B) she held much currency and owned many bonds. 
C) she held little currency and owned few bonds. 
D) she held little currency and owned many bonds. 
A) she held much currency and owned few bonds. 
B) she held much currency and owned many bonds. 
C) she held little currency and owned few bonds. 
D) she held little currency and owned many bonds.

Question 12

Which of the following could the government do to decrease the costs of inflation without lowering the inflation rate?

Accepted Answer

A) Avoid unexpected changes in the inflation rate. 
B) Rewrite the tax laws so that nominal gains were taxed instead of real gains. 
C) Make policy that would discourage firms from issuing indexed bonds. 
D) All of the above are correct. 
A) Avoid unexpected changes in the inflation rate. 
B) Rewrite the tax laws so that nominal gains were taxed instead of real gains. 
C) Make policy that would discourage firms from issuing indexed bonds. 
D) All of the above are correct.

Question 13

If a central bank were required to target inflation at zero,then when there was an unanticipated increase in aggregate supply the central bank

Accepted Answer

A) would have to increase the money supply.This would move unemployment closer to the natural rate. 
B) would have to increase the money supply.This would move unemployment further from the natural rate. 
C) would have to decrease the money supply.This would move unemployment closer to the natural rate. 
D) would have to decrease the money supply.This would move unemployment further from the natural rate. 
A) would have to increase the money supply.This would move unemployment closer to the natural rate. 
B) would have to increase the money supply.This would move unemployment further from the natural rate. 
C) would have to decrease the money supply.This would move unemployment closer to the natural rate. 
D) would have to decrease the money supply.This would move unemployment further from the natural rate.

Question 14

Which of the following things can a government do to lower the costs of inflation?

Accepted Answer

A) sell inflation-indexed bonds and rewrite tax laws so that real rather than nominal gains are taxed 
B) sell inflation-indexed bonds but not rewrite tax laws so that real rather than nominal gains are taxed 
C) rewrite tax laws so that real rather than nominal gains are taxed,but not sell inflation-indexed bonds 
D) neither sell inflation-indexed bonds nor rewrite tax laws so that real rather than nominal gains are taxed 
A) sell inflation-indexed bonds and rewrite tax laws so that real rather than nominal gains are taxed 
B) sell inflation-indexed bonds but not rewrite tax laws so that real rather than nominal gains are taxed 
C) rewrite tax laws so that real rather than nominal gains are taxed,but not sell inflation-indexed bonds 
D) neither sell inflation-indexed bonds nor rewrite tax laws so that real rather than nominal gains are taxed

Question 15

When wages are fixed by contract,inflation reduces

Accepted Answer

A) nominal wages;this likely makes labor markets more flexible. 
B) nominal wages;this likely makes labor markets less flexible. 
C) real wages;this likely makes labor markets more flexible. 
D) real wages;this likely makes labor markets less flexible. 
A) nominal wages;this likely makes labor markets more flexible. 
B) nominal wages;this likely makes labor markets less flexible. 
C) real wages;this likely makes labor markets more flexible. 
D) real wages;this likely makes labor markets less flexible.

Question 16

Some economists believe that there are positives from a little inflation and that it may "grease the wheels"

Accepted Answer

A) in the stock market. 
B) in the foreign exchange market. 
C) in the bond market. 
D) in the labor market. 
A) in the stock market. 
B) in the foreign exchange market. 
C) in the bond market. 
D) in the labor market.

Question 17

If inflation falls,

Accepted Answer

A) people choose to put in more effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from lenders to borrowers. 
B) people choose to put in more effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from borrowers to lenders. 
C) people choose to put in less effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from lenders to borrowers. 
D) people choose to put in less effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from borrowers to lenders. 
A) people choose to put in more effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from lenders to borrowers. 
B) people choose to put in more effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from borrowers to lenders. 
C) people choose to put in less effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from lenders to borrowers. 
D) people choose to put in less effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from borrowers to lenders.

Question 18

When wages are set by contract,inflation

Accepted Answer

A) reduces real wages;this likely makes labor markets more flexible. 
B) reduces real wages;this likely makes labor markets less flexible. 
C) raises real wages;this likely makes labor markets more flexible. 
D) raises real wages;this likely makes labor markets less flexible. 
A) reduces real wages;this likely makes labor markets more flexible. 
B) reduces real wages;this likely makes labor markets less flexible. 
C) raises real wages;this likely makes labor markets more flexible. 
D) raises real wages;this likely makes labor markets less flexible.

Question 19

Inflation reduction has the lowest cost when the efforts are

Accepted Answer

A) credible so that the sacrifice ratio is low. 
B) credible so that the sacrifice ratio is high. 
C) unexpected so that the sacrifice ratio is high. 
D) unexpected so that the sacrifice ratio is low. 
A) credible so that the sacrifice ratio is low. 
B) credible so that the sacrifice ratio is high. 
C) unexpected so that the sacrifice ratio is high. 
D) unexpected so that the sacrifice ratio is low.

Question 20

Which costs of inflation could the government reduce without reducing inflation?

Accepted Answer

A) shoeleather and menu costs 
B) menu costs and relative price variability 
C) unintended changes in tax liabilities and arbitrary redistributions of wealth 
D) none of the above is correct. 
A) shoeleather and menu costs 
B) menu costs and relative price variability 
C) unintended changes in tax liabilities and arbitrary redistributions of wealth 
D) none of the above is correct.

Exam 23: Six Debates Over Macroeconomic Policy: Should the Central Bank Aim for Zero Inflation

Inflation

If a central bank were required to target inflation at zero,then when there was a negative aggregate supply shock the central bank

A permanent reduction in inflation would

If a central bank were required to target inflation at zero,then when there was a positive aggregate supply shock the central bank

Using the typical estimate of the sacrifice ratio,how much output would be lost in reducing inflation from 3% to 1%?

If inflation were reduced,then it is

Economists

Paul Volcker's inflation reduction efforts

A reduction in inflation would lead to

An added benefit of inflation is that it allows for the possibility of

An individual would suffer lower losses from an unexpectedly higher inflation rate if

Which of the following could the government do to decrease the costs of inflation without lowering the inflation rate?

If a central bank were required to target inflation at zero,then when there was an unanticipated increase in aggregate supply the central bank

Which of the following things can a government do to lower the costs of inflation?

When wages are fixed by contract,inflation reduces

Some economists believe that there are positives from a little inflation and that it may "grease the wheels"

If inflation falls,

When wages are set by contract,inflation

Inflation reduction has the lowest cost when the efforts are

Which costs of inflation could the government reduce without reducing inflation?

Ten Principles of Economics

Ten Principles of Economics: How People Make Decisions

Ten Principles of Economics: How People Interact

Ten Principles of Economics: How the Economy As a Whole Works

Ten Principles of Economics: Part A

Ten Principles of Economics: Part B

Thinking Like an Economist

Thinking Like an Economist: The Economist As Scientist

Thinking Like an Economist: The Economist As Policy Adviser

Thinking Like an Economist: Why Economists Disagree

Thinking Like an Economist: Lets Get Going

Thinking Like an Economist: Graphing a Brief Review

Thinking Like an Economist: Part A

Thinking Like an Economist: Part B

Interdependence and the Gains From Trade

Interdependence and the Gains From Trade: A Parable for the Modern Economy

Interdependence and the Gains From Trade: Comparative Advantage the Driving Force of Specialization

Interdependence and the Gains From Trade: Applications of Comparative Advantage

Interdependence and the Gains From Trade: Conclusion

Interdependence and the Gains From Trade: Part A

Interdependence and the Gains From Trade: Part B

The Market Forces of Supply and Demand

The Market Forces of Supply and Demand:Markets and Competition

The Market Forces of Supply and Demand: Demand

The Market Forces of Supply and Demand: Supply

The Market Forces of Supply and Demand: Supply and Demand Together

The Market Forces of Supply and DemandConclusion How Prices Allocate Resources

The Market Forces of Supply and Demand: Part A

The Market Forces of Supply and Demand: Part B

Elasticity and Its Applications

Elasticity and Its Applications: The Elasticity of Demand

Elasticity and Its Applications: The Elasticity of Supply

Elasticity and Its Applications: Three Applications of Supply,demand,and Elasticity

Elasticity and Its Applications: Part A

Elasticity and Its Applications: Part B

Supply Demand and Government Policies

Supply Demand and Government Policies: Controls on Prices

Supply Demand and Government Policies: Taxes

Supply Demand and Government Policies: Part A

Supply Demand and Government Policies: Part B

Consumers Producers and the Efficiency of Markets

Consumers Producers and the Efficiency of Markets: Consumer Surplus

Consumers Producers and the Efficiency of Markets: Producer Surplus

Consumers Producers and the Efficiency of Markets: Market Efficiency

Consumers Producers and the Efficiency of Markets: Conclusion Market Efficiency and Market Failure

Consumers Producers and the Efficiency of Markets: Part A

Consumers Producers and the Efficiency of Markets: Part B

Application the Cost of Taxation

Application the Cost of Taxation: The Deadweight Loss of Taxation

Application the Cost of Taxation: The Determinants of the Deadweight Loss

Application the Cost of Taxation: Deadweight Loss and Tax Revenue As Taxes Vary

Application the Cost of Taxation: Conclusion

Application the Cost of Taxation: Part A

Application the Cost of Taxation: Part B

Application International Trade

Application International Trade: The Determinants of Trade

Application International Trade: The Winners and Losers From Trade

Application International Trade: The Arguments for Restricting Trade

Application International Trade: Conclusion