Question 1

In the mid 1990s, monthly inflation in Yugoslavia peaked at

Accepted Answer

A) 30%. 
B) 300%. 
C) 300,000%. 
D) 313,000,000%. 
A) 30%. 
B) 300%. 
C) 300,000%. 
D) 313,000,000%.

Question 2

Stanley Fischer has estimated that the annual excess burden in the United States of an inflation rate of 5% is approximately

Accepted Answer

A) $30 million. 
B) $30 billion. 
C) $300 billion. 
D) $3 trillion. 
A) $30 million. 
B) $30 billion. 
C) $300 billion. 
D) $3 trillion.

Question 3

If during a three-year period policymakers attempt to keep unemployment below the natural rate of unemployment, in the new Keynesian view

Accepted Answer

A) the LRAS curve will shift to the right. 
B) the LRAS curve will shift to the left. 
C) the total amount of output produced during the period will be smaller than in the new classical view. 
D) the total amount of output produced during the period will be greater than in the new classical view. 
A) the LRAS curve will shift to the right. 
B) the LRAS curve will shift to the left. 
C) the total amount of output produced during the period will be smaller than in the new classical view. 
D) the total amount of output produced during the period will be greater than in the new classical view.

Question 4

Shoe leather costs of inflation

Accepted Answer

A) increase as the inflation rate rises. 
B) decline as the inflation rate rises. 
C) would be eliminated by the indexing of income tax brackets. 
D) are the same as menu costs. 
A) increase as the inflation rate rises. 
B) decline as the inflation rate rises. 
C) would be eliminated by the indexing of income tax brackets. 
D) are the same as menu costs.

Question 5

In the face of workers pushing for higher wages, an accommodating monetary policy will result in

Accepted Answer

A) a higher price level and a lower level of current output. 
B) a lower price level and a higher level of current output. 
C) a higher price level and a higher level of current output. 
D) a lower price level and a lower level of current output. 
A) a higher price level and a lower level of current output. 
B) a lower price level and a higher level of current output. 
C) a higher price level and a higher level of current output. 
D) a lower price level and a lower level of current output.

Question 6

A classic example of hyperinflation occurred

Accepted Answer

A) in Japan in the 1970s. 
B) in the United Kingdom in the 1960s. 
C) in the United States in the 1930s. 
D) in Germany in the 1920s. 
A) in Japan in the 1970s. 
B) in the United Kingdom in the 1960s. 
C) in the United States in the 1930s. 
D) in Germany in the 1920s.

Question 7

Cost-push inflation

Accepted Answer

A) originates in the desire of policymakers to expand employment. 
B) will result in increases in output, unless policymakers adjust aggregate demand in response. 
C) cannot persist in the long run unless ratified by policymakers. 
D) was outlawed by the Humphrey-Hawkins Act of 1978. 
A) originates in the desire of policymakers to expand employment. 
B) will result in increases in output, unless policymakers adjust aggregate demand in response. 
C) cannot persist in the long run unless ratified by policymakers. 
D) was outlawed by the Humphrey-Hawkins Act of 1978.

Question 8

Which of the following statements is correct concerning the views of new Keynesians and new classicals concerning the short-run effects of an unexpected increase in aggregate demand?

Accepted Answer

A) New classical economists believe that unexpected increases in aggregate demand affect only prices. 
B) New Keynesian economists believe that unexpected increases in aggregate demand affect only output. 
C) Both new Keynesian and new classical economists believe that unexpected increases in aggregate demand affect only output. 
D) Both new Keynesian and new classical economists believe that unexpected increases in aggregate demand affect both output and prices. 
A) New classical economists believe that unexpected increases in aggregate demand affect only prices. 
B) New Keynesian economists believe that unexpected increases in aggregate demand affect only output. 
C) Both new Keynesian and new classical economists believe that unexpected increases in aggregate demand affect only output. 
D) Both new Keynesian and new classical economists believe that unexpected increases in aggregate demand affect both output and prices.

Question 9

Which of the following statements is correct concerning the views of new Keynesians and new classicals concerning aggregate supply?

Accepted Answer

A) New classical economists believe the short-run and long-run aggregate supply curves are both vertical. 
B) New Keynesian economists believe the short-run and long-run aggregate supply curves slope upward. 
C) Both new Keynesian and new classical economists believe the aggregate supply curve is vertical in the long run. 
D) Both new Keynesian and new classical economists believe the aggregate supply curve slopes upward in the long run. 
A) New classical economists believe the short-run and long-run aggregate supply curves are both vertical. 
B) New Keynesian economists believe the short-run and long-run aggregate supply curves slope upward. 
C) Both new Keynesian and new classical economists believe the aggregate supply curve is vertical in the long run. 
D) Both new Keynesian and new classical economists believe the aggregate supply curve slopes upward in the long run.

Question 10

Cold turkey disinflation

Accepted Answer

A) is very costly in terms of lost output in both the new classical and new Keynesian views. 
B) is virtually costless in terms of lost output in both the new classical and new Keynesian views. 
C) is very costly in terms of lost output in the new classical view, but virtually costless in the new Keynesian view. 
D) is very costly in terms of lost output in the new Keynesian view, but virtually costless in the new classical view. 
A) is very costly in terms of lost output in both the new classical and new Keynesian views. 
B) is virtually costless in terms of lost output in both the new classical and new Keynesian views. 
C) is very costly in terms of lost output in the new classical view, but virtually costless in the new Keynesian view. 
D) is very costly in terms of lost output in the new Keynesian view, but virtually costless in the new classical view.

Question 11

According to new classical economists, sustained expected increases in the nominal money supply will lead to

Accepted Answer

A) increases in output in the short run and sustained increases in prices in the long run. 
B) sustained increases in prices, with no short-run increases in output. 
C) short-run increases in prices and output, with a stable price level and no increases in output in the long run. 
D) sustained increases in both prices and output in the long run. 
A) increases in output in the short run and sustained increases in prices in the long run. 
B) sustained increases in prices, with no short-run increases in output. 
C) short-run increases in prices and output, with a stable price level and no increases in output in the long run. 
D) sustained increases in both prices and output in the long run.

Question 12

Demand-pull inflation results from

Accepted Answer

A) workers' pressure for higher wages. 
B) policymakers' attempts to increase aggregate demand for current output above the full-employment level. 
C) attempts by financial markets to deal with bracket creep. 
D) attempts by the public to receive higher after-tax returns on their savings. 
A) workers' pressure for higher wages. 
B) policymakers' attempts to increase aggregate demand for current output above the full-employment level. 
C) attempts by financial markets to deal with bracket creep. 
D) attempts by the public to receive higher after-tax returns on their savings.

Question 13

If the nominal interest rate on saving is 12% and the expected inflation rate is 6%, what is the percentage reduction in real interest income resulting from a tax of 25%?

Accepted Answer

A) 25% 
B) 50% 
C) 60% 
D) 100% 
A) 25% 
B) 50% 
C) 60% 
D) 100%

Question 14

Between 1939 and 2006 consumer prices rose about

Accepted Answer

A) 10%. 
B) 50%. 
C) 100%. 
D) 1000%. 
A) 10%. 
B) 50%. 
C) 100%. 
D) 1000%.

Question 15

Which of the following is the correct expression of the equation of exchange?

Accepted Answer

A) MY = PV 
B) MP = VY 
C) M/P = VY 
D) MV = PY 
A) MY = PV 
B) MP = VY 
C) M/P = VY 
D) MV = PY

Question 16

A disinflation policy that lacks credibility

Accepted Answer

A) results in a leftward shift of the AD curve. 
B) will increase the lost output and jobs that result from the policy. 
C) will work only if the economy is experiencing a hyperinflation. 
D) will have no effect on inflation. 
A) results in a leftward shift of the AD curve. 
B) will increase the lost output and jobs that result from the policy. 
C) will work only if the economy is experiencing a hyperinflation. 
D) will have no effect on inflation.

Question 17

A supply shock that is not responded to with an expansionary policy will result in

Accepted Answer

A) a one-time increase in the price level, but not inflation. 
B) neither a one-time increase in the price level nor inflation. 
C) both a one-time increase in the price level and inflation. 
D) inflation, but not a one-time increase in the price level. 
A) a one-time increase in the price level, but not inflation. 
B) neither a one-time increase in the price level nor inflation. 
C) both a one-time increase in the price level and inflation. 
D) inflation, but not a one-time increase in the price level.

Question 18

Despite its costs, governments typically resist eliminating inflation because

Accepted Answer

A) doing so would result in lost output and jobs when the economy is near full employment. 
B) the increase in menu costs because of inflation increases the governments' tax revenues. 
C) as net lenders, governments benefit from inflation. 
D) governments lack the knowledge of how to eliminate inflation. 
A) doing so would result in lost output and jobs when the economy is near full employment. 
B) the increase in menu costs because of inflation increases the governments' tax revenues. 
C) as net lenders, governments benefit from inflation. 
D) governments lack the knowledge of how to eliminate inflation.

Question 19

A 10% inflation rate means that

Accepted Answer

A) prices of some important goods and services have increased by 10%. 
B) every price in the economy has increased by 10%. 
C) the money supply has increased by 10%. 
D) the price level has increased by 10%. 
A) prices of some important goods and services have increased by 10%. 
B) every price in the economy has increased by 10%. 
C) the money supply has increased by 10%. 
D) the price level has increased by 10%.

Question 20

Under a rules strategy for monetary policy, the Fed would

Accepted Answer

A) follow specific and publicly announced guidelines for policy. 
B) adjust monetary policy as it sees fit. 
C) target the growth rate of M1, but not the growth rate of M2. 
D) target the growth rate of M2, but not the growth rate of M1. 
A) follow specific and publicly announced guidelines for policy. 
B) adjust monetary policy as it sees fit. 
C) target the growth rate of M1, but not the growth rate of M2. 
D) target the growth rate of M2, but not the growth rate of M1.

Exam 28: Inflation: Causes and Consequences

In the mid 1990s, monthly inflation in Yugoslavia peaked at

Stanley Fischer has estimated that the annual excess burden in the United States of an inflation rate of 5% is approximately

If during a three-year period policymakers attempt to keep unemployment below the natural rate of unemployment, in the new Keynesian view

Shoe leather costs of inflation

In the face of workers pushing for higher wages, an accommodating monetary policy will result in

A classic example of hyperinflation occurred

Cost-push inflation

Which of the following statements is correct concerning the views of new Keynesians and new classicals concerning the short-run effects of an unexpected increase in aggregate demand?

Which of the following statements is correct concerning the views of new Keynesians and new classicals concerning aggregate supply?

Cold turkey disinflation

According to new classical economists, sustained expected increases in the nominal money supply will lead to

Demand-pull inflation results from

If the nominal interest rate on saving is 12% and the expected inflation rate is 6%, what is the percentage reduction in real interest income resulting from a tax of 25%?

Between 1939 and 2006 consumer prices rose about

Which of the following is the correct expression of the equation of exchange?

A disinflation policy that lacks credibility

A supply shock that is not responded to with an expansionary policy will result in

Despite its costs, governments typically resist eliminating inflation because

A 10% inflation rate means that

Under a rules strategy for monetary policy, the Fed would

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

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