Question 1

If an economy produces 2,000 units of output when the price level is $1 and the money supply is $1,000, what is the velocity of money?

Accepted Answer

A)   2
B)   500
C)   50
D)   5E) None of the above
F) B) and C)

Question 2

Deflation is an overall:

Accepted Answer

A)   rise in prices.
B)   decline in prices.
C)   rise in prices, excluding goods and services with historically volatile price changes.
D)   decline in prices, excluding goods and services with historically volatile price changes.E) A) and C)
F) C) and D)

Question 3

What is often the result of raising interest rates to control inflation?

Accepted Answer

A)   Economic expansion
B)   Economic contraction
C)   Policy failure
D)   An increase in firm investmentE) B) and C)
F) B) and D)

Question 4

Which of the following is associated with predictable inflation?

Accepted Answer

A)   Tax distortions
B)   Budget charges
C)   Overheads
D)   The re-distribution of purchasing powerE) B) and C)
F) None of the above

Question 5

The reduction in aggregate demand caused by deflation:

Accepted Answer

A)   further reduces prices, causing a deflationary spiral.
B)   decreases production and raises prices back to their original level.
C)   further reduces prices, causing aggregate supply to shift back to its long-run equilibrium.
D)   decreases production and increase prices, mitigating the effects of the initial deflation.E) A) and D)
F) None of the above

Question 6

If the purchasing power of your savings increases over time:

Accepted Answer

A)   the real rate of interest is positive.
B)   you'll be able to buy more with your savings in the future than you can now.
C)   the inflation rate must be less than the nominal rate of interest.
D)   All of these statements are true.E) A) and B)
F) C) and D)

Question 7

If the purchasing power of your debt increases over time:

Accepted Answer

A)   the real interest rate is positive.
B)   the nominal rate of interest is positive.
C)   the inflation rate is greater than the nominal interest rate.
D)   the real interest rate is negative.E) A) and D)
F) B) and D)

Question 8

The number of transactions a typical dollar is used in during a given period is called the:

Accepted Answer

A)   velocity of money.
B)   transaction rate.
C)   quantity theory of money.
D)   monetary depreciation.E) B) and D)
F) B) and C)

Question 9

To measure core inflation, the BLS removes goods that:

Accepted Answer

A)   have historically volatile prices.
B)   have low elasticity.
C)   have historically stable prices.
D)   have high elasticity.E) A) and C)
F) None of the above

Question 10

The table shown provides CPI values for various years.  What was the inflation rate in 2018?

Accepted Answer

A)   2.9 percent
B)   −1.9 percent
C)   1.9 percent
D)   4 percentE) B) and C)
F) A) and B)

Question 11

When the price of a key input increases suddenly, it causes:

Accepted Answer

A)   cost-push inflation.
B)   the business cycle to become sporadic.
C)   demand-pull inflation.
D)   the velocity of money to rise.E) None of the above
F) A) and D)

Question 12

The classical theory of inflation:

Accepted Answer

A)   describes a long-run equilibrium.
B)   explains the direct relationship between money supply and the price level.
C)   shows the neutrality of money in the long run.
D)   All of these statements are true.E) All of the above
F) A) and B)

Question 13

Cost-push inflation occurs when the:

Accepted Answer

A)   price of a key input increases suddenly.
B)   price level changes in response to changes in the business cycle.
C)   prices of necessity goods increase suddenly.
D)   business cycle becomes sporadic and unpredictable.E) A) and D)
F) A) and C)

Question 14

If the value of your debt decreases over time:

Accepted Answer

A)   the real interest rate is negative.
B)   inflation is zero.
C)   the real interest rate is positive.
D)   the real interest rate is zero.E) C) and D)
F) All of the above

Question 15

According to the quantity theory of money, if there are fewer dollars available to spend on the same number of goods and services, then:

Accepted Answer

A)   the price level will fall.
B)   the price level will rise.
C)   output will decrease.
D)   output will increase.E) A) and B)
F) A) and C)

Question 16

What is the nominal interest rate?

Accepted Answer

A)   The real interest rate adjusted for inflation
B)   The reported interest rate adjusted for the effects of inflation
C)   The lowest interest rate a bank will charge borrowers
D)   The amount of interest the bank pays you for saving or charges you for borrowingE) All of the above
F) B) and C)

Question 17

The idea that the value of money is determined by the overall quantity of money in existence is known as:

Accepted Answer

A)   the quantity theory of money.
B)   the dual mandate.
C)   the price level requirement.
D)   core inflation.E) None of the above
F) A) and B)

Question 18

The real interest rate is:

Accepted Answer

A)   the federal funds rate.
B)   adjusted for inflation.
C)   the amount of interest the bank pays you for saving or charges you for borrowing.
D)   the actual average interest rate in the economy.E) All of the above
F) A) and C)

Question 19

To measure core inflation, the BLS excludes _______ from the basket of goods used to calculate the CPI.

Accepted Answer

A)   food and energy
B)   food, clothing, and housing
C)   food and housing
D)   housing and energyE) A) and D)
F) C) and D)

Question 20

The table shown provides CPI values for various years.  What was the inflation rate in 2017?

Accepted Answer

A)   4 percent
B)   −1.9 percent
C)   1.9 percent
D)   2.9 percentE) A) and B)
F) C) and D)

Exam 16: Inflation

The table shown provides CPI values for various years. What was the inflation rate in 2017?

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Which of the following is associated with predictable inflation?

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According to the quantity theory of money, if there are fewer dollars available to spend on the same number of goods and services, then:

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If the value of your debt decreases over time:

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If the purchasing power of your debt increases over time:

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What is often the result of raising interest rates to control inflation?

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The real interest rate is:

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The table shown provides CPI values for various years. What was the inflation rate in 2018?

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What is the nominal interest rate?

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When the price of a key input increases suddenly, it causes:

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Cost-push inflation occurs when the:

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Deflation is an overall:

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To measure core inflation, the BLS excludes _______ from the basket of goods used to calculate the CPI.

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If an economy produces 2,000 units of output when the price level is $1 and the money supply is $1,000, what is the velocity of money?

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To measure core inflation, the BLS removes goods that:

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The idea that the value of money is determined by the overall quantity of money in existence is known as:

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The number of transactions a typical dollar is used in during a given period is called the:

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The reduction in aggregate demand caused by deflation:

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If the purchasing power of your savings increases over time:

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The classical theory of inflation:

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