Question 1

Explain why a central bank's political independence lowers inflation expectations.

Accepted Answer

If a central bank is more independent, t

Question 2

Recall Application 3, "Hyperinflation in Zimbabwe," to answer the following questions:
-According to the application, the price level in June 2008 was _______ percent higher than the year before.

Accepted Answer

A)  8 million 
B)  4,000 
C)  50 trillion 
D)  300,000 
A)  8 million 
B)  4,000 
C)  50 trillion 
D)  300,000

Question 3

If the economy is at potential output, and people's expectations about inflation is correct, then the actual inflation:

Accepted Answer

A)  equals expected inflation. 
B)  is less than expected inflation. 
C)  is greater than expected inflation. 
D)  equals the natural rate of unemployment. 
A)  equals expected inflation. 
B)  is less than expected inflation. 
C)  is greater than expected inflation. 
D)  equals the natural rate of unemployment.

Question 4

The reason why individuals have more money demand when their inflation expectations increase is because:

Accepted Answer

A)  they need to find another job when prices go up so that they could buy the same goods and services. 
B)  they need more money in their pockets when prices go up so that they could buy the same goods and services. 
C)  they need a higher wage when prices go up so that they could buy the same goods and services. 
D)  they need less money in their pockets when prices go up so that they could buy the same goods and services. 
A)  they need to find another job when prices go up so that they could buy the same goods and services. 
B)  they need more money in their pockets when prices go up so that they could buy the same goods and services. 
C)  they need a higher wage when prices go up so that they could buy the same goods and services. 
D)  they need less money in their pockets when prices go up so that they could buy the same goods and services.

Question 5

If Bob feels better off after getting a 5 percent nominal wage increase even though the price level also went up by 5 percent. In this scenario, Bob falls victim to:

Accepted Answer

A)  money illusion. 
B)  nominal confusion. 
C)  purchasing power craziness. 
D)  money hallucination. 
A)  money illusion. 
B)  nominal confusion. 
C)  purchasing power craziness. 
D)  money hallucination.

Question 6

A central bank strongly committed to fighting inflation will cause increasing unemployment if the economy is currently producing above full employment.

Accepted Answer

A) True 
 B)False

Question 7

Recall Application 2, "Increased Political Independence for the Bank of England Lowered Inflation Expectations," to
answer the following questions:
-Based on the application, the Bank of England's independence lowered the public's expectations of inflation.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following were policies implemented by Paul Volcker in response to inflationary pressure in the 1980s?

Accepted Answer

A)  Increase the money supply and interest rates. 
B)  Tighten money supply to raise interest rates. 
C)  Increase tax rates to slow down the economy. 
D)  Increase government spending to lower the unemployment rates. 
A)  Increase the money supply and interest rates. 
B)  Tighten money supply to raise interest rates. 
C)  Increase tax rates to slow down the economy. 
D)  Increase government spending to lower the unemployment rates.

Question 9

You want to make a 5% real return on a loan that you are planning to make, and the expected inflation rate during the period of the loan is 6%. You should charge a nominal interest rate of:

Accepted Answer

A)  - 11%. 
B)  - 1%. 
C)  1%. 
D)  11%. 
A)  - 11%. 
B)  - 1%. 
C)  1%. 
D)  11%.

Question 10

If the price level increases from 120 to 320 in one month, the economy is experiencing:

Accepted Answer

A)  hyperinflation. 
B)  inflation. 
C)  both A and B 
D)  neither A nor B 
A)  hyperinflation. 
B)  inflation. 
C)  both A and B 
D)  neither A nor B

Question 11

An increase in the velocity of money can cause inflation.

Accepted Answer

A) True 
 B)False

Question 12

Bridget wants to make an 8% real return on a loan that she is planning to make, and the expected inflation rate during the period of the loan is 10%. She should charge an interest rate of:

Accepted Answer

A)  18%. 
B)  - 2%. 
C)  8%. 
D)  2%. 
A)  18%. 
B)  - 2%. 
C)  8%. 
D)  2%.

Question 13

A policy that reduces the natural rate of unemployment:

Accepted Answer

A)  shifts the expectations Phillips curve left. 
B)  makes the long- run Phillips curve horizontal. 
C)  shifts the expectations Phillips curve right. 
D)  has no effect on the expectations Phillips curve. 
A)  shifts the expectations Phillips curve left. 
B)  makes the long- run Phillips curve horizontal. 
C)  shifts the expectations Phillips curve right. 
D)  has no effect on the expectations Phillips curve.

Question 14

If prices increase by 4 percent and wages increase by 4 percent, the:

Accepted Answer

A)  real wage has increased. 
B)  real wage has not changed. 
C)  nominal wage has increased by 8 percent. 
D)  nominal wage has not changed. 
A)  real wage has increased. 
B)  real wage has not changed. 
C)  nominal wage has increased by 8 percent. 
D)  nominal wage has not changed.

Question 15

If the quantity equation holds, then a country operating under a gold standard will experience deflation:

Accepted Answer

A)  when the supply of gold decreases. 
B)  when people find other non- monetary uses for gold 
C)  when it buys more goods from another country using gold. 
D)  All of the above are correct. 
A)  when the supply of gold decreases. 
B)  when people find other non- monetary uses for gold 
C)  when it buys more goods from another country using gold. 
D)  All of the above are correct.

Question 16

Inflation cannot continue indefinitely without:

Accepted Answer

A)  increases in aggregate output. 
B)  increases in the interest rate. 
C)  increases in the money supply. 
D)  increases in investment. 
A)  increases in aggregate output. 
B)  increases in the interest rate. 
C)  increases in the money supply. 
D)  increases in investment.

Question 17

After experiencing about 4 percent inflation the last 10 years, Americans start to believe that the inflation for this year is also 4 percent. This belief regarding the future path of inflation based on previous inflation is called:

Accepted Answer

A)  intuitions of inflation. 
B)  expectations of inflation. 
C)  rational expectations. 
D)  a self fulfilling prophecy. 
A)  intuitions of inflation. 
B)  expectations of inflation. 
C)  rational expectations. 
D)  a self fulfilling prophecy.

Question 18

If the government has large budget deficits that cannot be financed by borrowing, the government:

Accepted Answer

A)  prints more money, causing inflation and hyperinflation. 
B)  prints less money, causing inflation and hyperinflation. 
C)  collects less taxes, causing inflation and hyperinflation. 
D)  collects more taxes, causing inflation and hyperinflation. 
A)  prints more money, causing inflation and hyperinflation. 
B)  prints less money, causing inflation and hyperinflation. 
C)  collects less taxes, causing inflation and hyperinflation. 
D)  collects more taxes, causing inflation and hyperinflation.

Question 19

Political scientists and economists argue that truly autonomous central banks that are subject to minimal political influence are more likely to be:

Accepted Answer

A)  less credible in their fight against inflation. 
B)  more credible in their attempts in reviving a troubled economy. 
C)  more credible in their fight against inflation. 
D)  less credible in their fight against unemployment. 
A)  less credible in their fight against inflation. 
B)  more credible in their attempts in reviving a troubled economy. 
C)  more credible in their fight against inflation. 
D)  less credible in their fight against unemployment.

Question 20

If the Fed is credible or believable in its desire to fight inflation, it can deter the private sector:

Accepted Answer

A)  from taking aggressive actions that drive prices down. 
B)  from taking aggressive actions that drive up prices. 
C)  from lowering real wages. 
D)  from developing rational expectations about inflation. 
A)  from taking aggressive actions that drive prices down. 
B)  from taking aggressive actions that drive up prices. 
C)  from lowering real wages. 
D)  from developing rational expectations about inflation.

Explain why a central bank's political independence lowers inflation expectations.

Recall Application 3, "Hyperinflation in Zimbabwe," to answer the following questions: -According to the application, the price level in June 2008 was _______ percent higher than the year before.

If the economy is at potential output, and people's expectations about inflation is correct, then the actual inflation:

The reason why individuals have more money demand when their inflation expectations increase is because:

If Bob feels better off after getting a 5 percent nominal wage increase even though the price level also went up by 5 percent. In this scenario, Bob falls victim to:

A central bank strongly committed to fighting inflation will cause increasing unemployment if the economy is currently producing above full employment.

Recall Application 2, "Increased Political Independence for the Bank of England Lowered Inflation Expectations," to answer the following questions: -Based on the application, the Bank of England's independence lowered the public's expectations of inflation.

Which of the following were policies implemented by Paul Volcker in response to inflationary pressure in the 1980s?

You want to make a 5% real return on a loan that you are planning to make, and the expected inflation rate during the period of the loan is 6%. You should charge a nominal interest rate of:

If the price level increases from 120 to 320 in one month, the economy is experiencing:

An increase in the velocity of money can cause inflation.

Bridget wants to make an 8% real return on a loan that she is planning to make, and the expected inflation rate during the period of the loan is 10%. She should charge an interest rate of:

A policy that reduces the natural rate of unemployment:

If prices increase by 4 percent and wages increase by 4 percent, the:

If the quantity equation holds, then a country operating under a gold standard will experience deflation:

Inflation cannot continue indefinitely without:

After experiencing about 4 percent inflation the last 10 years, Americans start to believe that the inflation for this year is also 4 percent. This belief regarding the future path of inflation based on previous inflation is called:

If the government has large budget deficits that cannot be financed by borrowing, the government:

Political scientists and economists argue that truly autonomous central banks that are subject to minimal political influence are more likely to be:

If the Fed is credible or believable in its desire to fight inflation, it can deter the private sector:

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Investment and Financial Markets

Money and the Banking System

The Federal Reserve and Monetary Policy

Modern Macroeconomics: From the Short Run to the Long Run

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters

Exam 16: The Dynamics of Inflation and Unemployment

Explain why a central bank's political independence lowers inflation expectations.

Recall Application 3, "Hyperinflation in Zimbabwe," to answer the following questions: -According to the application, the price level in June 2008 was _______ percent higher than the year before.

If the economy is at potential output, and people's expectations about inflation is correct, then the actual inflation:

The reason why individuals have more money demand when their inflation expectations increase is because:

If Bob feels better off after getting a 5 percent nominal wage increase even though the price level also went up by 5 percent. In this scenario, Bob falls victim to:

A central bank strongly committed to fighting inflation will cause increasing unemployment if the economy is currently producing above full employment.

Recall Application 2, "Increased Political Independence for the Bank of England Lowered Inflation Expectations," to answer the following questions: -Based on the application, the Bank of England's independence lowered the public's expectations of inflation.

Which of the following were policies implemented by Paul Volcker in response to inflationary pressure in the 1980s?

You want to make a 5% real return on a loan that you are planning to make, and the expected inflation rate during the period of the loan is 6%. You should charge a nominal interest rate of:

If the price level increases from 120 to 320 in one month, the economy is experiencing:

An increase in the velocity of money can cause inflation.

Bridget wants to make an 8% real return on a loan that she is planning to make, and the expected inflation rate during the period of the loan is 10%. She should charge an interest rate of:

A policy that reduces the natural rate of unemployment:

If prices increase by 4 percent and wages increase by 4 percent, the:

If the quantity equation holds, then a country operating under a gold standard will experience deflation:

Inflation cannot continue indefinitely without:

After experiencing about 4 percent inflation the last 10 years, Americans start to believe that the inflation for this year is also 4 percent. This belief regarding the future path of inflation based on previous inflation is called:

If the government has large budget deficits that cannot be financed by borrowing, the government:

Political scientists and economists argue that truly autonomous central banks that are subject to minimal political influence are more likely to be:

If the Fed is credible or believable in its desire to fight inflation, it can deter the private sector:

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Investment and Financial Markets

Money and the Banking System

The Federal Reserve and Monetary Policy

Modern Macroeconomics: From the Short Run to the Long Run

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters