Question 1

Deflation:

Accepted Answer

A)  hurts borrowers and helps lenders. 
B)  helps borrowers and hurts lenders. 
C)  unlike inflation, affects neither borrowers nor lenders. 
D)  affects only lenders. 
A)  hurts borrowers and helps lenders. 
B)  helps borrowers and hurts lenders. 
C)  unlike inflation, affects neither borrowers nor lenders. 
D)  affects only lenders.

Question 2

Expecting the inflation rate to be 3%, Adrianna decides to put her savings in bonds yielding a fixed 5% interest rate over a year. If the actual inflation rate is _____, it can be argued that _____ is/are better off.

Accepted Answer

A)  below 3%; Adrianna 
B)  exactly 5%; both the bond issuer and Adrianna 
C)  above 3%; Adrianna 
D)  below 3%; the bond issuer 
A)  below 3%; Adrianna 
B)  exactly 5%; both the bond issuer and Adrianna 
C)  above 3%; Adrianna 
D)  below 3%; the bond issuer

Question 3

The measure used by the Fed that excludes food and energy prices is the:

Accepted Answer

A)  consumer price index. 
B)  wholesale price index. 
C)  core inflation rate. 
D)  federal funds rate. 
A)  consumer price index. 
B)  wholesale price index. 
C)  core inflation rate. 
D)  federal funds rate.

Question 4

Zimbabwe's economic instability was caused primarily by:

Accepted Answer

A)  its joining the Coalition of the Willing in the Iraq war. 
B)  its attempts to join the European Union. 
C)  the government's seizure of the country's farms, which disrupted production. 
D)  its high tariffs on imported goods. 
A)  its joining the Coalition of the Willing in the Iraq war. 
B)  its attempts to join the European Union. 
C)  the government's seizure of the country's farms, which disrupted production. 
D)  its high tariffs on imported goods.

Question 5

If the money supply grows by 4% and the real money supply is $100 billion, real seignorage is:

Accepted Answer

A)  $4 billion. 
B)  $25 billion. 
C)  $400 billion. 
D)  $2.5 trillion. 
A)  $4 billion. 
B)  $25 billion. 
C)  $400 billion. 
D)  $2.5 trillion.

Question 6

During periods of low inflation, the short-run aggregate supply curve is:

Accepted Answer

A)  vertical. 
B)  horizontal. 
C)  upward sloping. 
D)  downward sloping. 
A)  vertical. 
B)  horizontal. 
C)  upward sloping. 
D)  downward sloping.

Question 7

To avoid falling into a liquidity trap, most central banks:

Accepted Answer

A)  seek a positive but small inflation rate rather than zero inflation. 
B)  target inflation rather than the money supply. 
C)  conduct open-market operations to change the money supply instead of changing the discount rate. 
D)  aim at a target of zero inflation so that inflation expectations are zero too. 
A)  seek a positive but small inflation rate rather than zero inflation. 
B)  target inflation rather than the money supply. 
C)  conduct open-market operations to change the money supply instead of changing the discount rate. 
D)  aim at a target of zero inflation so that inflation expectations are zero too.

Question 8

In June 2008 Zimbabwe had the world's highest unemployment rate.

Accepted Answer

A) True 
 B)False

Question 9

Use the following to answer questions:  
-(Figure: Short-Run Phillips Curve) Refer to Figure: Short-Run Phillips Curve. The natural rate of unemployment is _____%.

Accepted Answer

A)  3 
B)  5 
C)  7 
D)  8 
A)  3 
B)  5 
C)  7 
D)  8

Question 10

The unemployment rate will fall if potential output growth is:

Accepted Answer

A)  higher than actual output growth. 
B)  lower than actual output growth. 
C)  equal to actual output growth. 
D)  higher than the inflation rate. 
A)  higher than actual output growth. 
B)  lower than actual output growth. 
C)  equal to actual output growth. 
D)  higher than the inflation rate.

Question 11

It is impossible for the U.S. government to raise revenue by printing more money because the Federal Reserve, not the Treasury, issues most of the U.S. money supply.

Accepted Answer

A) True 
 B)False

Question 12

The notion that there is a trade-off between inflation and unemployment is expressed as a _____ curve.

Accepted Answer

A)  Phillips 
B)  Keynes 
C)  Schumpeter 
D)  Friedman 
A)  Phillips 
B)  Keynes 
C)  Schumpeter 
D)  Friedman

Question 13

Which of the following is the BEST explanation for an upward-sloping short-run aggregate supply curve?

Accepted Answer

A)  Prices are perfectly flexible. 
B)  Wages are perfectly flexible. 
C)  Wages and prices of some goods are sticky in the short run. 
D)  Wages and prices of some goods are flexible in the short run but sticky in the long run. 
A)  Prices are perfectly flexible. 
B)  Wages are perfectly flexible. 
C)  Wages and prices of some goods are sticky in the short run. 
D)  Wages and prices of some goods are flexible in the short run but sticky in the long run.

Question 14

The inability to use monetary policy because the nominal rate of interest cannot fall below zero is called:

Accepted Answer

A)  liquidity preference. 
B)  money neutrality. 
C)  liquidity trap. 
D)  money illusion. 
A)  liquidity preference. 
B)  money neutrality. 
C)  liquidity trap. 
D)  money illusion.

Question 15

If an administration pursues expansionary policy before an election to bring down unemployment, it can:

Accepted Answer

A)  produce inflation only if the real interest rate is zero to begin with. 
B)  lower people's expectations about inflation through a sense of false complacency. 
C)  produce inflation if the targeted rate of unemployment is too low. 
D)  produce disinflation if the expansionary monetary policy is unanticipated. 
A)  produce inflation only if the real interest rate is zero to begin with. 
B)  lower people's expectations about inflation through a sense of false complacency. 
C)  produce inflation if the targeted rate of unemployment is too low. 
D)  produce disinflation if the expansionary monetary policy is unanticipated.

Question 16

If the money held by the public is $3 billion and inflation is 6%, the inflation tax is:

Accepted Answer

A)  $3.18 billion. 
B)  $50 billion. 
C)  $180 million. 
D)  $1.8 billion. 
A)  $3.18 billion. 
B)  $50 billion. 
C)  $180 million. 
D)  $1.8 billion.

Question 17

If there has been a downward movement along the fixed short-run Phillips curve, the _____ curve has shifted to the _____.

Accepted Answer

A)  AD; left 
B)  AD; right 
C)  SRAS; left 
D)  SRAS; right 
A)  AD; left 
B)  AD; right 
C)  SRAS; left 
D)  SRAS; right

Question 18

Use the following to answer questions:  
-(Figure: Expected Inflation and the Short-Run Phillips Curve) SRPC0 is the Phillips curve with an expected inflation rate of zero; SRPC2 is the Phillips curve with an expected inflation rate of 2%. Refer to Figure: Expected Inflation and the Short-Run Phillips Curve. Suppose that this economy has an unemployment rate of 6%, no inflation, and no expectation of inflation. If the central bank increases the money supply such that aggregate demand shifts to the right and unemployment falls to 4%, then inflation will:

Accepted Answer

A)  fall to -2%. 
B)  not change. 
C)  rise to 2%. 
D)  rise to 4%. 
A)  fall to -2%. 
B)  not change. 
C)  rise to 2%. 
D)  rise to 4%.

Question 19

The worst inflation in the United States in modern times occurred in the late 1970s, when prices were increasing at an annual rate of 13%.

Accepted Answer

A) True 
 B)False

Question 20

The problem of debt deflation deepens during an economic slump because:

Accepted Answer

A)  borrowers have to reduce spending to pay off debts. 
B)  the Fisher effect raises the nominal interest rate during deflation. 
C)  lenders have to reduce spending to accommodate higher returns from loans. 
D)  the zero bound on the nominal interest rate is broken. 
A)  borrowers have to reduce spending to pay off debts. 
B)  the Fisher effect raises the nominal interest rate during deflation. 
C)  lenders have to reduce spending to accommodate higher returns from loans. 
D)  the zero bound on the nominal interest rate is broken.

Deflation:

Expecting the inflation rate to be 3%, Adrianna decides to put her savings in bonds yielding a fixed 5% interest rate over a year. If the actual inflation rate is _, it can be argued that _ is/are better off.

The measure used by the Fed that excludes food and energy prices is the:

Zimbabwe's economic instability was caused primarily by:

If the money supply grows by 4% and the real money supply is $100 billion, real seignorage is:

During periods of low inflation, the short-run aggregate supply curve is:

To avoid falling into a liquidity trap, most central banks:

In June 2008 Zimbabwe had the world's highest unemployment rate.

Use the following to answer questions: -(Figure: Short-Run Phillips Curve) Refer to Figure: Short-Run Phillips Curve. The natural rate of unemployment is _____%.

The unemployment rate will fall if potential output growth is:

It is impossible for the U.S. government to raise revenue by printing more money because the Federal Reserve, not the Treasury, issues most of the U.S. money supply.

The notion that there is a trade-off between inflation and unemployment is expressed as a _____ curve.

Which of the following is the BEST explanation for an upward-sloping short-run aggregate supply curve?

The inability to use monetary policy because the nominal rate of interest cannot fall below zero is called:

If an administration pursues expansionary policy before an election to bring down unemployment, it can:

If the money held by the public is $3 billion and inflation is 6%, the inflation tax is:

If there has been a downward movement along the fixed short-run Phillips curve, the _ curve has shifted to the _.

The worst inflation in the United States in modern times occurred in the late 1970s, when prices were increasing at an annual rate of 13%.

The problem of debt deflation deepens during an economic slump because:

First Principles

Economic Models: Trade-Offs and Trade

Supply and Demand

Price Controls and Quotas: Meddling With Markets

International Trade

Macroeconomics: the Big Picture

GDP and the CPI: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial Syst

Income and Expenditure

Aggregate Demand and Aggregate Supply

Fiscal Policy

Money, Banking, and the Federal Reserve System

Monetary Policy

Macroeconomics: Events and Ideas

International Macroeconomics

Filters

Exam 16: Inflation, Disinflation, and Deflation

Deflation:

Expecting the inflation rate to be 3%, Adrianna decides to put her savings in bonds yielding a fixed 5% interest rate over a year. If the actual inflation rate is _____, it can be argued that _____ is/are better off.

The measure used by the Fed that excludes food and energy prices is the:

Zimbabwe's economic instability was caused primarily by:

If the money supply grows by 4% and the real money supply is $100 billion, real seignorage is:

During periods of low inflation, the short-run aggregate supply curve is:

To avoid falling into a liquidity trap, most central banks:

In June 2008 Zimbabwe had the world's highest unemployment rate.

Use the following to answer questions: -(Figure: Short-Run Phillips Curve) Refer to Figure: Short-Run Phillips Curve. The natural rate of unemployment is _____%.

The unemployment rate will fall if potential output growth is:

It is impossible for the U.S. government to raise revenue by printing more money because the Federal Reserve, not the Treasury, issues most of the U.S. money supply.

The notion that there is a trade-off between inflation and unemployment is expressed as a _____ curve.

Which of the following is the BEST explanation for an upward-sloping short-run aggregate supply curve?

The inability to use monetary policy because the nominal rate of interest cannot fall below zero is called:

If an administration pursues expansionary policy before an election to bring down unemployment, it can:

If the money held by the public is $3 billion and inflation is 6%, the inflation tax is:

If there has been a downward movement along the fixed short-run Phillips curve, the _____ curve has shifted to the _____.

The worst inflation in the United States in modern times occurred in the late 1970s, when prices were increasing at an annual rate of 13%.

The problem of debt deflation deepens during an economic slump because:

First Principles

Economic Models: Trade-Offs and Trade

Supply and Demand

Price Controls and Quotas: Meddling With Markets

International Trade

Macroeconomics: the Big Picture

GDP and the CPI: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial Syst

Income and Expenditure

Aggregate Demand and Aggregate Supply

Fiscal Policy

Money, Banking, and the Federal Reserve System

Monetary Policy

Macroeconomics: Events and Ideas

International Macroeconomics

Filters

Expecting the inflation rate to be 3%, Adrianna decides to put her savings in bonds yielding a fixed 5% interest rate over a year. If the actual inflation rate is _, it can be argued that _ is/are better off.

If there has been a downward movement along the fixed short-run Phillips curve, the _ curve has shifted to the _.