Exam 8: Inflation

Suppose you put $100 in the bank on January 1, 2017. If the annual nominal interest rate is 5 percent and the inflation rate is 5 percent, you will be able to buy ________ worth of inflation-adjusted goods on January 1, 2018.

If long-run real GDP growth is determined by real changes in the economy, the quantity theory of money implies that changes in:

The essence of the quantity theory of money is that:

If all goods' prices adjust simultaneously, there will be a short-term misallocation of resources.

Suppose you put $100 in the bank on January 1, 2017. If the annual nominal interest rate is 2 percent and the inflation rate is 5 percent, you will be able to buy ________ worth of goods on January 1, 2018, valued at 2017's prices.

If not all price setters are convinced that high inflation rates will end soon, there is/are:

The U.S. dollar is backed by the belief that it has value.

Liquidity is a measure of:

With unanticipated inflation:

Fiat money has value because:

The real interest rate is:

In the simple quantity theory of money, the supply of money is:

If a bank offers you a 30-year fixed-rate mortgage, it is passing inflation risk over to you.

Table 8.3 contains the following variables, growth rates of real GDP, M1, M2, velocity of M1 and M2 (denoted V1 and V2), the federal funds rate (FFR), and the CPI inflation rate. Use the quantity equation to calculate the equilibrium inflation rate using individually M1 and M2. Next, calculate the equilibrium inflation rate assuming the quantity theory of money holds. According to your calculations, which is a better predictor of inflation, M1 or M2? Similarly, which is a better predictor of inflation, assuming the quantity theory holds, or not?Table 8.3: Growth Rates (Source: FRED II, St. Louis Federal Reserve)

In 2015, the Wendy's Junior Cheeseburger Deluxe was on the "Right Price Right Size" menu and was priced at $1.89. If the CPI in 1979 was 72.6 and the CPI in 2015 was 237.0, what is the price of a 2015 cheeseburger in 1979 dollars?

Economists often use a rate of inflation that is calculated using all goods except vehicles and housing, because prices for these goods are relatively volatile.

When discussing inflation, we generally speak of it in terms of:

In dollar amounts, which of the following is the largest?

The velocity of money is:

The nominal interest rate is: