Question 1

When real rates of interest are positive,it is better to be a:

Accepted Answer

A)  saver than a borrower,because the value of savings and debts are increasing.
B)  borrower than a saver,because the value of savings and debts are increasing.
C)  saver than a borrower,because the value of savings and debts are decreasing.
D)  borrower than a saver,because the value of savings and debts are decreasing.E) A) and B)
F) None of the above

Question 2

Holding a currency to the gold standard works:

Accepted Answer

A)  to the advantage of savers at the expense of borrowers.
B)  to the advantage of borrowers at the expense of savers.
C)  for no one,and hurts both savers and borrowers from access to money.
D)  for everyone,benefiting both savers and borrowers.E) None of the above
F) All of the above

Question 3

The quantity equation states:

Accepted Answer

A)  M × V = P × Y.
B)  M × P = Y × V.
C)  P × V = M × Y.
D)  None of these statements is true.E) A) and B)
F) All of the above

Question 4

When real rates of interest are negative,borrowers:

Accepted Answer

A)  benefit,because the value of their debt declines.
B)  suffer,because the value of their debt declines.
C)  benefit,because the value of their debt increases.
D)  suffer,because the value of their debt increases.E) B) and C)
F) A) and B) A

Question 5

The money,time,and opportunity used to change prices to keep pace with inflation are called:

Accepted Answer

A)  menu costs.
B)  shoe-leather costs.
C)  tax distortions.
D)  the velocity of inflation.E) A) and D)
F) A) and B)

Question 6

The relationship between money supply,output,and the overall level of prices is illustrated by:

Accepted Answer

A)  the classical theory of inflation.
B)  the neutrality of money.
C)  the aggregate price level.
D)  the measure of real output.E) All of the above
F) A) and B)

Question 7

The idea that aggregate price levels do not affect real outcomes in the economy is called:

Accepted Answer

A)  the neutrality of money.
B)  the aggregate price theory.
C)  the neutrality of prices.
D)  the real output theory.E) None of the above
F) B) and C)

Question 8

When an economy experiences deflation,consumption:

Accepted Answer

A)  will decrease,because people will want to wait for prices to drop before spending.
B)  will increase,because people will want to wait for prices to drop before spending.
C)  will decrease,because people will lose value in their savings.
D)  will increase,because people will lose value in their savings.E) None of the above
F) B) and C)

Question 9

While the __________ is immaterial,the _________ can have a big effect on economic behavior.

Accepted Answer

A)  price level;unpredicted change in the price level
B)  unpredicted change in the price level;price level
C)  price level;predictable change in the price level
D)  predictable change in the price level;price levelE) B) and D)
F) A) and D)

Question 10

Nominal output is the _________ of goods and services,and real output is the _______ of goods and services.

Accepted Answer

A)  dollar value;actual amount
B)  actual amount;dollar value
C)  actual amount;dollar value with inflation
D)  dollar value with inflation;dollar valueE) B) and C)
F) None of the above

Question 11

If the real rate of return is 2 percent,and the inflation rate is 0 percent,then the nominal interest rate must be:

Accepted Answer

A)  2 percent.
B)  0 percent.
C)  4 percent.
D)  -2 percent.E) All of the above
F) A) and D)

Question 12

If the real rate of return is 3 percent,and the inflation rate is 4 percent,then the nominal interest rate must be:

Accepted Answer

A)  -1 percent.
B)  1 percent.
C)  7 percent.
D)  -7 percent.E) A) and D)
F) None of the above

Question 13

According to the quantity theory of money,a decrease in prices would be due to:

Accepted Answer

A)  a decrease in the money supply.
B)  an increase in the money supply.
C)  a decrease in the production of output.
D)  an increase in the production of output.E) B) and D)
F) All of the above A

Question 14

Tax distortions refer to the cost of inflation that comes from:

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.E) B) and C)
F) A) and D)

Question 15

A period when overall inflation rates are positive but falling is called:

Accepted Answer

A)  disinflation.
B)  deflation.
C)  inflation.
D)  zero price level.E) B) and D)
F) A) and D)

Question 16

Core inflation is a measure of:

Accepted Answer

A)  inflation that excludes goods with historically volatile price changes.
B)  an overall rise in prices in the economy.
C)  the Consumer Price Index with durable goods excluded.
D)  the change in the Consumer Price Index with durable goods excluded.E) B) and C)
F) A) and D)

Question 17

The severe oil shortages of the 1970s created:

Accepted Answer

A)  cost push inflation.
B)  demand pull inflation.
C)  a recession.
D)  the velocity of money to rise.E) A) and B)
F) All of the above

Question 18

________ inflation is more stable than __________ inflation,because it excludes food and gasoline prices.

Accepted Answer

A)  Core;headline
B)  Headline;core
C)  Core;nominal
D)  Nominal;coreE) B) and D)
F) All of the above

Question 19

If an economy produces 2,000 units of output with a price level of $1 and the money supply (M) is $1,000,velocity is:

Accepted Answer

A)  2.
B)  500.
C)  50.
D)  .5.E) A) and D)
F) A) and C) A

Question 20

________ inflation is more stable than __________ inflation,because it ____________.

Accepted Answer

A)  Core;headline;excludes food and gasoline prices
B)  Headline;core;excludes food and gasoline prices
C)  Core;headline;does not exclude food and gasoline prices
D)  Headline;core;does not exclude food and gasoline pricesE) A) and D)
F) C) and D)

Exam 32: Inflation

When real rates of interest are positive,it is better to be a:

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Holding a currency to the gold standard works:

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The quantity equation states:

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When real rates of interest are negative,borrowers:

Correct AnswerverifiedA

The money,time,and opportunity used to change prices to keep pace with inflation are called:

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The relationship between money supply,output,and the overall level of prices is illustrated by:

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The idea that aggregate price levels do not affect real outcomes in the economy is called:

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When an economy experiences deflation,consumption:

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While the __________ is immaterial,the _________ can have a big effect on economic behavior.

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Nominal output is the _________ of goods and services,and real output is the _______ of goods and services.

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If the real rate of return is 2 percent,and the inflation rate is 0 percent,then the nominal interest rate must be:

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If the real rate of return is 3 percent,and the inflation rate is 4 percent,then the nominal interest rate must be:

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According to the quantity theory of money,a decrease in prices would be due to:

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Tax distortions refer to the cost of inflation that comes from:

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A period when overall inflation rates are positive but falling is called:

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Core inflation is a measure of:

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The severe oil shortages of the 1970s created:

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________ inflation is more stable than __________ inflation,because it excludes food and gasoline prices.

Correct AnswerverifiedShow Answer

If an economy produces 2,000 units of output with a price level of $1 and the money supply (M) is $1,000,velocity is:

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________ inflation is more stable than __________ inflation,because it ____________.

Correct AnswerverifiedShow Answer

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While the __ is immaterial,the _ can have a big effect on economic behavior.

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Nominal output is the ___ of goods and services,and real output is the _ of goods and services.

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inflation is more stable than __ inflation,because it excludes food and gasoline prices.

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inflation is more stable than inflation,because it ______.

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