Question 1

Tax distortions happen because tax laws take into consideration only:

Accepted Answer

A)  nominal income.
B)  real income.
C)  nominal output.
D)  real output.E) All of the above
F) B) and C)

Question 2

When we consider our savings,interest rates _________ and inflation rates ___________ the value.

Accepted Answer

A)  increase;decrease
B)  decrease;increase
C)  increase;increase
D)  have no real effect;decreaseE) C) and D)
F) None of the above

Question 3

Which of the following goods' prices are not considered when calculating core inflation?

Accepted Answer

A)  food
B)  housing
C)  clothing
D)  All of these are necessities and are therefore not considered.E) B) and D)
F) All of the above

Question 4

If the nominal interest rate is higher than the real interest rate,then inflation must be:

Accepted Answer

A)  zero.
B)  higher than the nominal rate of interest.
C)  lower than the nominal rate of interest.
D)  negative.E) None of the above
F) All of the above

Question 5

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 D)
F) A) and C)

Question 6

If the value of your savings is increasing over time,we know that:

Accepted Answer

A)  the real rate of interest is positive.
B)  the nominal rate of interest must be at least as big as the real rate of interest.
C)  the inflation rate must be lower than the nominal rate of interest.
D)  All of these statements are true.E) A) and D)
F) B) and C)

Question 7

The lowest possible unemployment rate that will not cause the inflation rate to increase is called:

Accepted Answer

A)  the nonaccelerating inflation rate of unemployment (NAIRU) .
B)  the natural rate of unemployment.
C)  "full employment."
D)  All of these statements are true.E) B) and D)
F) A) and B)

Question 8

An overall fall in prices in the economy is called:

Accepted Answer

A)  inflation.
B)  deflation.
C)  core inflation.
D)  core deflation.E) A) and D)
F) None of the above

Question 9

The notion 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 money quantity theory.
C)  the price level theory.
D)  the level theory of prices.E) None of the above
F) A) and B)

Question 10

More recently,the velocity of money was:

Accepted Answer

A)  higher during the housing boom and lower during the recession that followed.
B)  lower during the housing boom and higher during the recession that followed.
C)  consistently higher than the historical trend since the mid 1980s.
D)  consistently lower than the historical trend since the early 1990s.E) B) and C)
F) None of the above

Question 11

The Phillips Curve depicts that,in general:

Accepted Answer

A)  high amounts of unemployment in an economy will coincide with low inflation.
B)  low amounts of unemployment in an economy will coincide with low inflation.
C)  high amounts of unemployment in an economy will coincide with high inflation.
D)  None of these statements is true.E) None of the above
F) B) and D)

Question 12

The constant velocity of money in the quantity equation implies that any increase in the money supply has to lead directly to:

Accepted Answer

A)  an increase in P.
B)  an increase in V.
C)  an increase in Y.
D)  a decrease in P.E) B) and C)
F) A) and D)

Question 13

Most economists agree that modest inflation is desirable over zero inflation because:

Accepted Answer

A)  it helps firms to more easily adjust real wages.
B)  it allows a margin of error for those deciding on the money supply.
C)  it allows the Fed to more easily engage in expansionary monetary policy.
D)  All of these statements are true.E) B) and C)
F) A) and D)

Question 14

When the economy is experiencing a negative output gap:

Accepted Answer

A)  some people and some capital are unemployed.
B)  the economy may be in a recession.
C)  there is little inflationary pressure due to low demand.
D)  All of these statements are true.E) A) and B)
F) A) and D)

Question 15

When a central bank aggressively tries to contain inflation via contractionary monetary policy,which condition is most likely to occur?

Accepted Answer

A)  Disinflation
B)  Inflation
C)  Deflation
D)  UnderinflationE) A) and D)
F) B) and D)

Question 16

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 neutrality of money in the long run.
D)  All of these statements are true.E) C) and D)
F) A) and C)

Question 17

If an economy produces 4,000 units of output with a price level of $2 and with a velocity of money of 8,we know that the money supply must be:

Accepted Answer

A)  $1,000.
B)  $8,000.
C)  $2,000.
D)  $4,000.E) B) and C)
F) A) and B)

Question 18

Menu costs refer to:

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) C) and D)
F) B) and D)

Question 19

The Phillips Curve will shift because of:

Accepted Answer

A)  expected inflation.
B)  normal inflation.
C)  hyperinflation.
D)  None of these statements is true.E) A) and B)
F) None of the above

Question 20

The aggregate price level is:

Accepted Answer

A)  a measure of the average price level for GDP.
B)  measured by the CPI.
C)  measured by the GDP price deflator.
D)  All of these statements are true.E) C) and D)
F) B) and D)

Exam 32: Inflation

If the nominal interest rate is higher than the real interest rate,then inflation must be:

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The classical theory of inflation:

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More recently,the velocity of money was:

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Tax distortions happen because tax laws take into consideration only:

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The Phillips Curve depicts that,in general:

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Menu costs refer to:

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If an economy produces 4,000 units of output with a price level of $2 and with a velocity of money of 8,we know that the money supply must be:

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When a central bank aggressively tries to contain inflation via contractionary monetary policy,which condition is most likely to occur?

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If the value of your savings is increasing over time,we know that:

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When the economy is experiencing a negative output gap:

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Most economists agree that modest inflation is desirable over zero inflation because:

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An overall fall in prices in the economy is called:

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The aggregate price level is:

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The constant velocity of money in the quantity equation implies that any increase in the money supply has to lead directly to:

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The lowest possible unemployment rate that will not cause the inflation rate to increase is called:

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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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The Phillips Curve will shift because of:

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When we consider our savings,interest rates _________ and inflation rates ___________ the value.

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

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Which of the following goods' prices are not considered when calculating core inflation?

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When we consider our savings,interest rates _ and inflation rates ___ the value.

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