Question 1

The coordination problem is difficult to solve because:

Accepted Answer

A)  policymakers cannot make unified decisions. 
B)  aggregate price-setting behavior has built-in inflation inertia. 
C)  individual price-setting behavior economywide has built-in inflation inertia. 
D)  central banks are controlled by many different interests. 
E)  All of these answers are correct. 
A)  policymakers cannot make unified decisions. 
B)  aggregate price-setting behavior has built-in inflation inertia. 
C)  individual price-setting behavior economywide has built-in inflation inertia. 
D)  central banks are controlled by many different interests. 
E)  All of these answers are correct.

Question 2

If you put $100 in the bank for one year at an annual nominal interest rate of 5 percent and yearly inflation is running at 7 percent, you will be able to buy $105 worth of inflation adjusted goods when you pull it out of your account.

Accepted Answer

A) True 
 B)False

Question 3

Fiat money has value because:

Accepted Answer

A)  it is backed by gold. 
B)  people believe it has value. 
C)  it has intrinsic value. 
D)  it is backed by silver. 
E)  None of these answers is correct. 
A)  it is backed by gold. 
B)  people believe it has value. 
C)  it has intrinsic value. 
D)  it is backed by silver. 
E)  None of these answers is correct.

Question 4

If the real interest rate is negative, it must mean that:

Accepted Answer

A)  in the short run, bond rates can be very volatile. 
B)  in the short run, the real interest rate equals the marginal product of capital. 
C)  in the short run, the real interest rate can deviate from the marginal product of capital. 
D)  it is difficult to predict long-term interest rates. 
E)  there is no relationship between long- and short-term interest rates. 
A)  in the short run, bond rates can be very volatile. 
B)  in the short run, the real interest rate equals the marginal product of capital. 
C)  in the short run, the real interest rate can deviate from the marginal product of capital. 
D)  it is difficult to predict long-term interest rates. 
E)  there is no relationship between long- and short-term interest rates.

Question 5

Explain how increases in government expenditures can lead to inflation.

Accepted Answer

The government budget constraint is give

Question 6

A country on the silver standard uses:

Accepted Answer

A)  coins. 
B)  fiat money. 
C)  bond money. 
D)  commodity money. 
E)  None of these answers is correct. 
A)  coins. 
B)  fiat money. 
C)  bond money. 
D)  commodity money. 
E)  None of these answers is correct.

Question 7

Let R denote the real interest rate, i denote the nominal interest rate, and  $\pi$ denote the rate of inflation. The equation i = R +  $\pi$ is called:

Accepted Answer

A)  the money supply. 
B)  the quantity equation. 
C)  the Fisher equation. 
D)  the quantity theory of money. 
E)  money neutrality. 
A)  the money supply. 
B)  the quantity equation. 
C)  the Fisher equation. 
D)  the quantity theory of money. 
E)  money neutrality.

Question 8

Write down the quantity equation in growth terms and identify each variable.
(a) According to the quantity theory of money, what determines the long-run rate of inflation?
(b) If real output growth is 3 percent and velocity is constant, what must the growth rate of
money be to ensure that inflation is 5 percent?

Accepted Answer

The quantity equation is given by M<sub>

Question 9

Compared to the real interest rate, the nominal interest rate has been relatively constant, moving with changes in inflation.

Accepted Answer

A) True 
 B)False

Question 10

If you decide to buy a house with an adjustable-rate mortgage (ARM), you are:

Accepted Answer

A)  exposing yourself to inflation risk. 
B)  reducing your inflation risk. 
C)  passing inflation risk to the lender. 
D)  taking on some of the lender's inflation risk. 
E)  increasing your mortgage payment. 
A)  exposing yourself to inflation risk. 
B)  reducing your inflation risk. 
C)  passing inflation risk to the lender. 
D)  taking on some of the lender's inflation risk. 
E)  increasing your mortgage payment.

Question 11

Negative inflationary surprises lead to a(n):

Accepted Answer

A)  increase in the real interest rate. 
B)  redistribution of wealth from borrowers to lenders. 
C)  decline in the nominal interest rate. 
D)  decline in inflation risk for lenders. 
E)  redistribution of wealth from lenders to borrowers. 
A)  increase in the real interest rate. 
B)  redistribution of wealth from borrowers to lenders. 
C)  decline in the nominal interest rate. 
D)  decline in inflation risk for lenders. 
E)  redistribution of wealth from lenders to borrowers.

Question 12

Briefly discuss what makes up the monetary base, M1, and M2.

Accepted Answer

(a) Monetary base = currency +

Question 13

A risk a bank takes on by offering long-term fixed interest rate loans is the:

Accepted Answer

A)  loss of real returns due to anticipated inflation. 
B)  gain that could be made from offering short-term loans. 
C)  loss of real returns due to an unexpected inflation surprise. 
D)  gains that could have been made if the money were invested in an alternative asset. 
E)  loss of customers wanting flexible interest loans. 
A)  loss of real returns due to anticipated inflation. 
B)  gain that could be made from offering short-term loans. 
C)  loss of real returns due to an unexpected inflation surprise. 
D)  gains that could have been made if the money were invested in an alternative asset. 
E)  loss of customers wanting flexible interest loans.

Question 14

Inflationary surprises transfer wealth from lenders to borrowers.

Accepted Answer

A) True 
 B)False

Question 15

If you withdraw $100 from your checking account and deposit it in your savings account:

Accepted Answer

A)  M1 rises and M2 falls. 
B)  both M1 and M2 rise. 
C)  M1 falls by $50 and M2 rises by $50. 
D)  the monetary base rises. 
E)  M1 falls and M2 is unchanged. 
A)  M1 rises and M2 falls. 
B)  both M1 and M2 rise. 
C)  M1 falls by $50 and M2 rises by $50. 
D)  the monetary base rises. 
E)  M1 falls and M2 is unchanged.

Question 16

When calculating fixed retirement payments, it is important not to forget:

Accepted Answer

A)  changes in flexible interest rates. 
B)  the decline in the payment's value due to inflation. 
C)  the increase in the payment's value due to inflation. 
D)  rates of return in other markets. 
E)  the price of tea in China. 
A)  changes in flexible interest rates. 
B)  the decline in the payment's value due to inflation. 
C)  the increase in the payment's value due to inflation. 
D)  rates of return in other markets. 
E)  the price of tea in China.

Question 17

According to the government's budget constraint, if the government spends more than it generates in taxes, it can raise revenues by:

Accepted Answer

A)  printing money. 
B)  decreasing its debt. 
C)  lowering interest rates. 
D)  privatizing. 
E)  increasing interest rates. 
A)  printing money. 
B)  decreasing its debt. 
C)  lowering interest rates. 
D)  privatizing. 
E)  increasing interest rates.

The coordination problem is difficult to solve because:

If you put $100 in the bank for one year at an annual nominal interest rate of 5 percent and yearly inflation is running at 7 percent, you will be able to buy $105 worth of inflation adjusted goods when you pull it out of your account.

Fiat money has value because:

If the real interest rate is negative, it must mean that:

Explain how increases in government expenditures can lead to inflation.

A country on the silver standard uses:

Let R denote the real interest rate, i denote the nominal interest rate, and $\pi$ denote the rate of inflation. The equation i = R + $\pi$ is called:

Compared to the real interest rate, the nominal interest rate has been relatively constant, moving with changes in inflation.

If you decide to buy a house with an adjustable-rate mortgage (ARM), you are:

Negative inflationary surprises lead to a(n):

Briefly discuss what makes up the monetary base, M1, and M2.

A risk a bank takes on by offering long-term fixed interest rate loans is the:

Inflationary surprises transfer wealth from lenders to borrowers.

If you withdraw $100 from your checking account and deposit it in your savings account:

When calculating fixed retirement payments, it is important not to forget:

According to the government's budget constraint, if the government spends more than it generates in taxes, it can raise revenues by:

Introduction to Macroeconomics

Measuring the Macroeconomy

An Overview of Long-Run Economic Growth

A Model of Production

The Solow Growth Model

Growth and Ideas

The Labor Market, Wages, and Unemployment

An Introduction to the Short Run

The Great Recession: a First Look

The Is Curve

Monetary Policy and the Phillips Curve

Stabilization Policy and the Asad Framework

The Great Recession and the Short-Run Model

Dsge Models: the Frontier of Business Cycle Research

Consumption

Investment

The Government and the Macroeconomy

International Trade

Exchange Rates and International Finance

Parting Thoughts

Filters

Exam 8: Inflation

The coordination problem is difficult to solve because:

If you put $100 in the bank for one year at an annual nominal interest rate of 5 percent and yearly inflation is running at 7 percent, you will be able to buy $105 worth of inflation adjusted goods when you pull it out of your account.

Fiat money has value because:

If the real interest rate is negative, it must mean that:

Explain how increases in government expenditures can lead to inflation.

A country on the silver standard uses:

Let R denote the real interest rate, i denote the nominal interest rate, and π\piπ denote the rate of inflation. The equation i = R + π\piπ is called:

Compared to the real interest rate, the nominal interest rate has been relatively constant, moving with changes in inflation.

If you decide to buy a house with an adjustable-rate mortgage (ARM), you are:

Negative inflationary surprises lead to a(n):

Briefly discuss what makes up the monetary base, M1, and M2.

A risk a bank takes on by offering long-term fixed interest rate loans is the:

Inflationary surprises transfer wealth from lenders to borrowers.

If you withdraw $100 from your checking account and deposit it in your savings account:

When calculating fixed retirement payments, it is important not to forget:

According to the government's budget constraint, if the government spends more than it generates in taxes, it can raise revenues by:

Introduction to Macroeconomics

Measuring the Macroeconomy

An Overview of Long-Run Economic Growth

A Model of Production

The Solow Growth Model

Growth and Ideas

The Labor Market, Wages, and Unemployment

An Introduction to the Short Run

The Great Recession: a First Look

The Is Curve

Monetary Policy and the Phillips Curve

Stabilization Policy and the Asad Framework

The Great Recession and the Short-Run Model

Dsge Models: the Frontier of Business Cycle Research

Consumption

Investment

The Government and the Macroeconomy

International Trade

Exchange Rates and International Finance

Parting Thoughts

Filters

Let R denote the real interest rate, i denote the nominal interest rate, and $\pi$ denote the rate of inflation. The equation i = R + $\pi$ is called: