Question 1

What are the costs of inflation?

Accepted Answer

The costs of inflation include 'shoeleather costs', being the cost of reducing your money holdings to reduce your inflation tax; 'menu costs', being the costs associated with price adjustments; the costs of resource misallocation that result from the relative-price variability induced by inflation; the costs of inflation-induced tax distortions; the costs of confusion and inconvenience; and the costs associated with the arbitrary redistributions of wealth that accompany unexpected inflation.

Question 2

The demand for money is:

Accepted Answer

A)  positively related to the interest rate 
B)  positively related to the price level 
C)  positively related to the money supply 
D)  negatively related to the money supply 
A)  positively related to the interest rate 
B)  positively related to the price level 
C)  positively related to the money supply 
D)  negatively related to the money supply B

Question 3

The inflation tax:

Accepted Answer

A)  is collected by the government every time people use money for transaction 
B)  transfers wealth from government to households 
C)  is paid by everyone who holds money 
D)  all of the above 
A)  is collected by the government every time people use money for transaction 
B)  transfers wealth from government to households 
C)  is paid by everyone who holds money 
D)  all of the above C

Question 4

The notion that nominal variables are heavily influenced by the quantity of money, and that money is largely irrelevant to understanding the determinants of real variables, is called:

Accepted Answer

A)  monetarism 
B)  the quantity theory 
C)  the Fisher effect 
D)  the classical dichotomy 
A)  monetarism 
B)  the quantity theory 
C)  the Fisher effect 
D)  the classical dichotomy

Question 5

An extraordinarily high rate of inflation is called:

Accepted Answer

A)  disinflation 
B)  hyperinflation 
C)  hyperdisinflation 
D)  adverse inflation 
A)  disinflation 
B)  hyperinflation 
C)  hyperdisinflation 
D)  adverse inflation

Question 6

A rise in the price level means a:

Accepted Answer

A)  deflation 
B)  higher value of money 
C)  lower value of money 
D)  lower value of goods 
A)  deflation 
B)  higher value of money 
C)  lower value of money 
D)  lower value of goods

Question 7

What would critics of the RBA's view believe will happen if the money supply is tightened to control inflation?

Accepted Answer

High interest rates, coupled w

Question 8

Why does the demand for money curve slope downwards to the right?

Accepted Answer

As the interest rate decreases

Question 9

The demand for money depends on:

Accepted Answer

A)  the interest rate 
B)  the average level of prices in the economy 
C)  income 
D)  all of the above 
A)  the interest rate 
B)  the average level of prices in the economy 
C)  income 
D)  all of the above

Question 10

Which of the following statements is correct?

Accepted Answer

A)  Economic variables measured in physical units are nominal variables, and economic variables measured in monetary units are real variables 
B)  Economic variables measured in physical units are real variables, and economic variables measured in monetary units are nominal variables 
C)  Economic variables measured in physical units are actual variables, and economic variables measured in monetary units are nominal variables 
D)  Economic variables measured in physical units are real variables, and economic variables measured in monetary units are actual variables 
A)  Economic variables measured in physical units are nominal variables, and economic variables measured in monetary units are real variables 
B)  Economic variables measured in physical units are real variables, and economic variables measured in monetary units are nominal variables 
C)  Economic variables measured in physical units are actual variables, and economic variables measured in monetary units are nominal variables 
D)  Economic variables measured in physical units are real variables, and economic variables measured in monetary units are actual variables

Question 11

Explain inflation tax. How does government collect the inflation tax and who pays this tax?

Accepted Answer

The inflation tax is the revenue the gov

Question 12

If between when you purchase an asset and sell it, the general price level and the price of the asset both double, then you have realised a:

Accepted Answer

A)  capital gain 
B)  real gain 
C)  capital loss 
D)  real loss 
A)  capital gain 
B)  real gain 
C)  capital loss 
D)  real loss

Question 13

If the bank posts a nominal interest rate of 7 per cent per year and the inflation rate is 4 per cent per year, then the real interest rate is:

Accepted Answer

A)  -3 per cent 
B)  3 per cent 
C)  4 per cent 
D)  11 per cent 
A)  -3 per cent 
B)  3 per cent 
C)  4 per cent 
D)  11 per cent

Question 14

According to the Fisher effect, an increase in the rate of inflation from 3 per cent to 4 per cent will _____.

Accepted Answer

A)  increase the nominal interest rate by 7 percentage points 
B)  increase the real interest rate by 3 percentage points 
C)  decrease the nominal interest rate by 3 percentage points 
D)  increase the nominal interest rate by 1 percentage point 
A)  increase the nominal interest rate by 7 percentage points 
B)  increase the real interest rate by 3 percentage points 
C)  decrease the nominal interest rate by 3 percentage points 
D)  increase the nominal interest rate by 1 percentage point

Question 15

Unexpected inflation redistributes wealth among debtors and creditors. Who benefits - creditors or debtors? Explain.

Accepted Answer

If inflation is unexpected, cr

Question 16

The frequent changes to the price of petrol contradicts the concept of menu costs.

Accepted Answer

A) True 
 B)False

Question 17

Given constant velocity and output, the notion that prices rise when more money is created:

Accepted Answer

A)  is known as the natural rate theory 
B)  was first explained by Milton Friedman 
C)  is known as the Fisher effect of money 
D)  is known as the quantity theory of money 
A)  is known as the natural rate theory 
B)  was first explained by Milton Friedman 
C)  is known as the Fisher effect of money 
D)  is known as the quantity theory of money

Question 18

Because of inflation-induced changes in taxes on capital gains and interest income, higher inflation tends to discourage people from saving and lowers the rate of economic growth.

Accepted Answer

A) True 
 B)False

Question 19

The velocity of money measures how many times per year the typical dollar coin is used to pay for a newly produced good or service.

Accepted Answer

A) True 
 B)False

Question 20

Nominal GDP measures:

Accepted Answer

A)  the dollar value of the economy's output of goods and services 
B)  the total quantity of goods and services produced 
C)  the total income received from producing goods and services in constant dollars 
D)  all of the above 
A)  the dollar value of the economy's output of goods and services 
B)  the total quantity of goods and services produced 
C)  the total income received from producing goods and services in constant dollars 
D)  all of the above

Exam 30: Inflation: Its Causes and Costs

What are the costs of inflation?

The demand for money is:

The inflation tax:

The notion that nominal variables are heavily influenced by the quantity of money, and that money is largely irrelevant to understanding the determinants of real variables, is called:

An extraordinarily high rate of inflation is called:

A rise in the price level means a:

What would critics of the RBA's view believe will happen if the money supply is tightened to control inflation?

Why does the demand for money curve slope downwards to the right?

The demand for money depends on:

Which of the following statements is correct?

Explain inflation tax. How does government collect the inflation tax and who pays this tax?

If between when you purchase an asset and sell it, the general price level and the price of the asset both double, then you have realised a:

If the bank posts a nominal interest rate of 7 per cent per year and the inflation rate is 4 per cent per year, then the real interest rate is:

According to the Fisher effect, an increase in the rate of inflation from 3 per cent to 4 per cent will _____.

Unexpected inflation redistributes wealth among debtors and creditors. Who benefits - creditors or debtors? Explain.

The frequent changes to the price of petrol contradicts the concept of menu costs.

Given constant velocity and output, the notion that prices rise when more money is created:

Because of inflation-induced changes in taxes on capital gains and interest income, higher inflation tends to discourage people from saving and lowers the rate of economic growth.

The velocity of money measures how many times per year the typical dollar coin is used to pay for a newly produced good or service.

Nominal GDP measures:

Ten Lessons From Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand and Government Policies

Consumers, Producers and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Business Strategy

Competition Policy

Monopolistic Competition

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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