Question 1

According to the equation of exchange, the velocity of money is equal to

Accepted Answer

A) M/PY. 
B) PY/M. 
C) PM/Y. 
D) MY/P. 
A) M/PY. 
B) PY/M. 
C) PM/Y. 
D) MY/P.

Question 2

Inflation places a tax on real money balances

Accepted Answer

A) by increasing the public's demand for real money balances. 
B) when those balances pay less than the market rate of interest. 
C) because nominal interest payments are deductible on the personal tax, whereas real interest payments are not. 
D) whenever the actual inflation rate is less than the expected inflation rate. 
A) by increasing the public's demand for real money balances. 
B) when those balances pay less than the market rate of interest. 
C) because nominal interest payments are deductible on the personal tax, whereas real interest payments are not. 
D) whenever the actual inflation rate is less than the expected inflation rate.

Question 3

Inflation generates an excess burden whenever

Accepted Answer

A) it is greater than zero. 
B) income tax brackets are not indexed. 
C) the public's shoe leather costs exceed the government's revenue gain from the inflation tax. 
D) bracket creep exceeds the public's shoe leather costs. 
A) it is greater than zero. 
B) income tax brackets are not indexed. 
C) the public's shoe leather costs exceed the government's revenue gain from the inflation tax. 
D) bracket creep exceeds the public's shoe leather costs.

Question 4

About how much would you have needed in 2006 to buy something that cost $0.10 in 1939?

Accepted Answer

A) $0.25 
B) $0.50 
C) $1.00 
D) $10.00 
A) $0.25 
B) $0.50 
C) $1.00 
D) $10.00

Question 5

The reason that the U.S. economy has experienced long-term inflation since World War II is

Accepted Answer

A) the high tax rates imposed by the federal government. 
B) the large budget deficits run by the federal government. 
C) the rate of growth of the money supply has been too fast relative to the rates of growth of velocity and output. 
D) the long-run increases in the prices of oil and other basic commodities. 
A) the high tax rates imposed by the federal government. 
B) the large budget deficits run by the federal government. 
C) the rate of growth of the money supply has been too fast relative to the rates of growth of velocity and output. 
D) the long-run increases in the prices of oil and other basic commodities.

Question 6

Price controls tend to be ineffective in controlling inflation because they

Accepted Answer

A) fail to shift the SRAS curve sufficiently far to the right. 
B) suppress inflation rather than eliminate it. 
C) widen the government's budget deficit. 
D) reduce the rate of growth of the money supply. 
A) fail to shift the SRAS curve sufficiently far to the right. 
B) suppress inflation rather than eliminate it. 
C) widen the government's budget deficit. 
D) reduce the rate of growth of the money supply.

Question 7

Economists believe that the most serious costs of inflation arise from

Accepted Answer

A) bracket creep. 
B) menu costs. 
C) redistributions of wealth owing to unexpected inflation. 
D) uncertainty about the rate of inflation. 
A) bracket creep. 
B) menu costs. 
C) redistributions of wealth owing to unexpected inflation. 
D) uncertainty about the rate of inflation.

Question 8

The Humphrey-Hawkins Act of 1978

Accepted Answer

A) committed the federal government to promoting full employment, even if it comes at the expense of a stable price level. 
B) committed the federal government to promoting a stable price level, even if it comes at the expense of full employment. 
C) committed the federal government to promoting full employment and a stable price level. 
D) removed the Secretary of the Treasury from the Board of Governors of the Federal Reserve. 
A) committed the federal government to promoting full employment, even if it comes at the expense of a stable price level. 
B) committed the federal government to promoting a stable price level, even if it comes at the expense of full employment. 
C) committed the federal government to promoting full employment and a stable price level. 
D) removed the Secretary of the Treasury from the Board of Governors of the Federal Reserve.

Question 9

New Keynesian and new classical economists agree that

Accepted Answer

A) policymakers cannot permanently maintain the unemployment rate below the natural rate. 
B) production beyond the full-employment level of output is impossible, even in the short run. 
C) in the long run the inflation rate must be zero. 
D) the LRAS curve slopes up. 
A) policymakers cannot permanently maintain the unemployment rate below the natural rate. 
B) production beyond the full-employment level of output is impossible, even in the short run. 
C) in the long run the inflation rate must be zero. 
D) the LRAS curve slopes up.

Question 10

During the 1980s countries like Argentina and Israel experienced

Accepted Answer

A) high average rates of inflation and rapid average rates of growth of the nominal money supply. 
B) low average rates of inflation and rapid average rates of growth of the nominal money supply. 
C) high average rates of inflation and slow average rates of growth of the nominal money supply. 
D) low average rates of inflation and slow average rates of growth of the nominal money supply. 
A) high average rates of inflation and rapid average rates of growth of the nominal money supply. 
B) low average rates of inflation and rapid average rates of growth of the nominal money supply. 
C) high average rates of inflation and slow average rates of growth of the nominal money supply. 
D) low average rates of inflation and slow average rates of growth of the nominal money supply.

Question 11

If everything else is held constant, which of the following would NOT lead to short-term inflation?

Accepted Answer

A) An increase in the growth rate of aggregate supply 
B) An increase in the nominal money supply 
C) An increase in consumer spending 
D) An increase in government spending 
A) An increase in the growth rate of aggregate supply 
B) An increase in the nominal money supply 
C) An increase in consumer spending 
D) An increase in government spending

Question 12

Which of the following is NOT a widely used measure of the price level?

Accepted Answer

A) The Price Level Indicator 
B) The Producer Price Index 
C) The Consumer Price Index 
D) The GDP Implicit Price Deflator 
A) The Price Level Indicator 
B) The Producer Price Index 
C) The Consumer Price Index 
D) The GDP Implicit Price Deflator

Question 13

Inflation that is higher than expected redistributes wealth from

Accepted Answer

A) employers to employees under nominal wage contracts. 
B) borrowers to lenders. 
C) lenders to borrowers. 
D) the federal government to taxpayers. 
A) employers to employees under nominal wage contracts. 
B) borrowers to lenders. 
C) lenders to borrowers. 
D) the federal government to taxpayers.

Question 14

Holding everything else constant, which of the following would cause an increase in short-term inflation?

Accepted Answer

A) A decrease in the nominal money supply 
B) A decrease in net exports 
C) A decrease in consumer spending 
D) A decrease in the growth rate of aggregate supply 
A) A decrease in the nominal money supply 
B) A decrease in net exports 
C) A decrease in consumer spending 
D) A decrease in the growth rate of aggregate supply

Question 15

If the nominal interest rate on saving is 5% and the expected inflation rate is 2%, what is the after-tax return on saving if the tax rate is 25%?

Accepted Answer

A) 1.75% 
B) 2.25% 
C) 3% 
D) 5.75% 
A) 1.75% 
B) 2.25% 
C) 3% 
D) 5.75%

Question 16

In which of the following decades was the rate of inflation the highest?

Accepted Answer

A) 1930s 
B) 1970s 
C) 1980s 
D) 1990s 
A) 1930s 
B) 1970s 
C) 1980s 
D) 1990s

Question 17

When inflation fluctuates significantly,

Accepted Answer

A) the signals provided by relative prices improve. 
B) the signals provided by relative prices are distorted. 
C) the cost of inflation is minimized. 
D) nominal interest rates will be low. 
A) the signals provided by relative prices improve. 
B) the signals provided by relative prices are distorted. 
C) the cost of inflation is minimized. 
D) nominal interest rates will be low.

Question 18

At the beginning of the twenty-first century most economists

Accepted Answer

A) urged the Fed to focus on its goal of high employment. 
B) urged central banks to focus their energy on low inflation. 
C) believed the underlying inflation rate in the United States was higher than it had been in the late 1970s. 
D) were critical of the performance of Alan Greenspan has Chairman of the Fed. 
A) urged the Fed to focus on its goal of high employment. 
B) urged central banks to focus their energy on low inflation. 
C) believed the underlying inflation rate in the United States was higher than it had been in the late 1970s. 
D) were critical of the performance of Alan Greenspan has Chairman of the Fed.

Question 19

If one-time shifts in the SRAS curve do not lead to inflation, why is it sometimes said that a wave of wage increases during a given year can lead to cost-push inflation?

Accepted Answer

Cost-push inflation does not result dire

Question 20

A hyperinflation is particularly costly to an economy because

Accepted Answer

A) the real tax burden imposed on the public increases dramatically. 
B) there is a large redistribution of wealth from borrowers to lenders. 
C) prices no longer indicate value or direct resource allocation. 
D) the demand for real money balances increases significantly. 
A) the real tax burden imposed on the public increases dramatically. 
B) there is a large redistribution of wealth from borrowers to lenders. 
C) prices no longer indicate value or direct resource allocation. 
D) the demand for real money balances increases significantly.

Exam 28: Inflation: Causes and Consequences

According to the equation of exchange, the velocity of money is equal to

Inflation places a tax on real money balances

Inflation generates an excess burden whenever

About how much would you have needed in 2006 to buy something that cost $0.10 in 1939?

The reason that the U.S. economy has experienced long-term inflation since World War II is

Price controls tend to be ineffective in controlling inflation because they

Economists believe that the most serious costs of inflation arise from

The Humphrey-Hawkins Act of 1978

New Keynesian and new classical economists agree that

During the 1980s countries like Argentina and Israel experienced

If everything else is held constant, which of the following would NOT lead to short-term inflation?

Which of the following is NOT a widely used measure of the price level?

Inflation that is higher than expected redistributes wealth from

Holding everything else constant, which of the following would cause an increase in short-term inflation?

If the nominal interest rate on saving is 5% and the expected inflation rate is 2%, what is the after-tax return on saving if the tax rate is 25%?

In which of the following decades was the rate of inflation the highest?

When inflation fluctuates significantly,

At the beginning of the twenty-first century most economists

If one-time shifts in the SRAS curve do not lead to inflation, why is it sometimes said that a wave of wage increases during a given year can lead to cost-push inflation?

A hyperinflation is particularly costly to an economy because

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Filters