Question 1

If people expect an inflation rate of 3% and later it turns out to be 5%,then the real rate of return will be:

Accepted Answer

A)  less than the equilibrium rate. 
B)  greater than the equilibrium rate. 
C)  3%. 
D)  5%.

Question 2

Most cases of national hyperinflation are caused by governments attempting to redistribute wealth to poorer citizens.

Accepted Answer

A) True 
 B)False

Question 3

When actual inflation is less than expected,wealth is transferred from the borrower to the lender.

Accepted Answer

A) True 
 B)False

Question 4

Inflation is painful to stop because stopping it:

Accepted Answer

A)  is virtually impossible. 
B)  involves decreasing people's wages. 
C)  requires decreasing the growth rate of the money supply,which typically leads to lower growth overall. 
D)  requires lowering interest rates,which hurts lenders but benefits borrowers.

Question 5

What happens to workers who contract for cost of living allowances of 10% a year when the inflation rate falls to 4%?

Accepted Answer

A)  They lose purchasing power. 
B)  They are paying an inflation tax. 
C)  They become more costly to employ and may lose their jobs. 
D)  They must be suffering from money illusion.

Question 6

Although money is neutral in the short run,it's possible that changes in money supply can change real GDP in the long run.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is NOT a price index often used to measure inflation?

Accepted Answer

A)  consumer price index 
B)  producer price index 
C)  net price index 
D)  GDP deflator

Question 8

Inflation is:

Accepted Answer

A)  the average number of times a dollar is spent on final goods and services in a year. 
B)  when people mistake changes in nominal prices for changes in real prices. 
C)  a decrease in the average level of prices. 
D)  an increase in the average level of prices.

Question 9

One of the major problems associated with hyperinflation is the increased uncertainty associated with long-term contracts.

Accepted Answer

A) True 
 B)False

Question 10

Monetizing the debt occurs when the government pays off its debts by printing money.

Accepted Answer

A) True 
 B)False

Question 11

The Fisher effect is the tendency of nominal interest rates to rise with expected inflation rates.

Accepted Answer

A) True 
 B)False

Question 12

Why could very high rates of inflation cause velocity to increase?

Accepted Answer

A)  The more people earn,the faster they spend it. 
B)  The more money loses its value,the faster people try to spend it. 
C)  The more people earn,the faster prices rise. 
D)  The more inflation there is,the more there is to buy.

Question 13

Which of the following is NOT a cost of inflation?

Accepted Answer

A)  price confusion 
B)  declining wages 
C)  money illusion 
D)  inflation tax

Question 14

To compare accurately the price of automobiles in 1950 and in 2010,we would need to calculate the real price of automobiles in 1950 and in 2010.

Accepted Answer

A) True 
 B)False

Question 15

Suppose the average level of prices increased from 100 to 110 between 2007 and 2008,and from 110 to 115 between 2008 and 2009.Between 2008 and 2009,there was:

Accepted Answer

A)  deflation. 
B)  hyperinflation. 
C)  disinflation. 
D)  inflation in the real price of everything.

Question 16

If,in an economic panic,people decide to hold their money rather than spend it,the velocity of money will:

Accepted Answer

A)  remain relatively constant. 
B)  increase. 
C)  decrease. 
D)  become unpredictable.

Question 17

According to the quantity theory of money,a nation that increases its money supply by 30% should expect its price level to increase by approximately:

Accepted Answer

A)  15%. 
B)  30%. 
C)  45%. 
D)  60%.

Question 18

In the short run,money is neutral.

Accepted Answer

A) True 
 B)False

Question 19

All else equal,according to the quantity theory of money,an increase in the velocity of money will cause:

Accepted Answer

A)  deflation. 
B)  disinflation. 
C)  hyperinflation. 
D)  higher inflation.

Question 20

Episodes of hyperinflation are caused by:

Accepted Answer

A)  severe recessions. 
B)  extreme economic booms. 
C)  extremely high rates of money growth. 
D)  moderately high rates of real GDP growth.

Exam 12: Inflation and the Quantity Theory of Money

If people expect an inflation rate of 3% and later it turns out to be 5%,then the real rate of return will be:

Most cases of national hyperinflation are caused by governments attempting to redistribute wealth to poorer citizens.

When actual inflation is less than expected,wealth is transferred from the borrower to the lender.

Inflation is painful to stop because stopping it:

What happens to workers who contract for cost of living allowances of 10% a year when the inflation rate falls to 4%?

Although money is neutral in the short run,it's possible that changes in money supply can change real GDP in the long run.

Which of the following is NOT a price index often used to measure inflation?

Inflation is:

One of the major problems associated with hyperinflation is the increased uncertainty associated with long-term contracts.

Monetizing the debt occurs when the government pays off its debts by printing money.

The Fisher effect is the tendency of nominal interest rates to rise with expected inflation rates.

Why could very high rates of inflation cause velocity to increase?

Which of the following is NOT a cost of inflation?

To compare accurately the price of automobiles in 1950 and in 2010,we would need to calculate the real price of automobiles in 1950 and in 2010.

Suppose the average level of prices increased from 100 to 110 between 2007 and 2008,and from 110 to 115 between 2008 and 2009.Between 2008 and 2009,there was:

If,in an economic panic,people decide to hold their money rather than spend it,the velocity of money will:

According to the quantity theory of money,a nation that increases its money supply by 30% should expect its price level to increase by approximately:

In the short run,money is neutral.

All else equal,according to the quantity theory of money,an increase in the velocity of money will cause:

Episodes of hyperinflation are caused by: