Question 1

The argument that "inflation is always and everywhere a monetary phenomenon" is consistent with:

Accepted Answer

A)  the theory of price confusion. 
B)  the quantity theory of money. 
C)  the theory of money illusion. 
D)  the Fisher effect. 
A)  the theory of price confusion. 
B)  the quantity theory of money. 
C)  the theory of money illusion. 
D)  the Fisher effect.

Question 2

The quantity theory states that money is neutral:

Accepted Answer

A)  in both the short run and the long run. 
B)  only in the short run. 
C)  only in the long run. 
D)  neither in the short run nor in the long run. 
A)  in both the short run and the long run. 
B)  only in the short run. 
C)  only in the long run. 
D)  neither in the short run nor in the long run.

Question 3

When a nation has a money supply of 4,000,a money velocity of 2,and a GDP of 800,the price level is 100.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is a problem with deflation?

Accepted Answer

A)  It raises the real cost of debt repayment. 
B)  Stopping it will cause a recession. 
C)  It causes people to pay more taxes. 
D)  There is no problem with deflation;falling prices are good for the economy. 
A)  It raises the real cost of debt repayment. 
B)  Stopping it will cause a recession. 
C)  It causes people to pay more taxes. 
D)  There is no problem with deflation;falling prices are good for the economy.

Question 5

Government debt monetization generally leads to inflation.

Accepted Answer

A) True 
 B)False

Question 6

If the price of gasoline increased from $2.50 per gallon in 2006 to $3.50 per gallon in 2010,during which time the CPI increased from 203.1 to 220.2,then we can conclude that the real price of gasoline declined from 2006 to 2010.

Accepted Answer

A) True 
 B)False

Question 7

One of the major costs of inflation is the decreased real purchasing power of wages that accompanies it.

Accepted Answer

A) True 
 B)False

Question 8

The inflation rate is equal to the rate of change of the price level.

Accepted Answer

A) True 
 B)False

Question 9

In times of rising prices,lenders will always benefit at the expense of borrowers.

Accepted Answer

A) True 
 B)False

Question 10

The consumer price index measures the prices of:

Accepted Answer

A)  all final goods bought by American consumers. 
B)  a basket of goods bought by a typical American consumer. 
C)  intermediate as well as final goods. 
D)  introductory,intermediate,and final goods. 
A)  all final goods bought by American consumers. 
B)  a basket of goods bought by a typical American consumer. 
C)  intermediate as well as final goods. 
D)  introductory,intermediate,and final goods.

Question 11

In hyperinflationary situations,one might expect the velocity of money to increase.

Accepted Answer

A) True 
 B)False

Question 12

When inflation functions as a type of tax,which of the following groups of people will be hurt the most?

Accepted Answer

A)  people or businesses with deposits in a savings account that pays an interest rate higher than the rate of inflation 
B)  people or businesses that invest in gold,silver,platinum,or other metals 
C)  people who hold currency and coins in their wallet,purse,or at home 
D)  people who invest their money in mutual funds 
A)  people or businesses with deposits in a savings account that pays an interest rate higher than the rate of inflation 
B)  people or businesses that invest in gold,silver,platinum,or other metals 
C)  people who hold currency and coins in their wallet,purse,or at home 
D)  people who invest their money in mutual funds

Question 13

An unexpected disinflation benefits lenders and harms borrowers.

Accepted Answer

A) True 
 B)False

Question 14

For a tax system in which higher income earners pay a larger share of their incomes in taxes,a higher inflation rate:

Accepted Answer

A)  lowers the tax burden of taxpayers. 
B)  raises the tax burden of taxpayers. 
C)  does not affect the tax burden of taxpayers. 
D)  can raise or lower the tax burden of taxpayers,depending on their income levels. 
A)  lowers the tax burden of taxpayers. 
B)  raises the tax burden of taxpayers. 
C)  does not affect the tax burden of taxpayers. 
D)  can raise or lower the tax burden of taxpayers,depending on their income levels.

Question 15

Hungary holds the world record for the largest hyperinflation,set in 1945-1946.

Accepted Answer

A) True 
 B)False

Question 16

Jordan loaned Taylor $1,200 on March 15,2009.Taylor returned $1,260 on March 14,2010.Inflation was 2% over the 1-year period.What is the real interest rate that Taylor paid?

Accepted Answer

A)  2% 
B)  3% 
C)  5% 
D)  7% 
A)  2% 
B)  3% 
C)  5% 
D)  7%

Question 17

Money is neutral in the long run but not in the short run.

Accepted Answer

A) True 
 B)False

Question 18

Which measure of prices includes all of the final goods and services in a nation's output?

Accepted Answer

A)  consumer price index 
B)  the GDP deflator 
C)  producer price index 
D)  the exchange rate 
A)  consumer price index 
B)  the GDP deflator 
C)  producer price index 
D)  the exchange rate

Question 19

When an increase in the money supply is unexpected by firms and workers,real GDP:

Accepted Answer

A)  increases in the short run. 
B)  decreases in the short run. 
C)  increases in the long run. 
D)  decreases in the long run. 
A)  increases in the short run. 
B)  decreases in the short run. 
C)  increases in the long run. 
D)  decreases in the long run.

Question 20

Discuss the reasons for Zimbabwe's high inflation rate.

Accepted Answer

Because of the policies of President Rob

Exam 12: Inflation and the Quantity Theory of Money

The argument that "inflation is always and everywhere a monetary phenomenon" is consistent with:

The quantity theory states that money is neutral:

When a nation has a money supply of 4,000,a money velocity of 2,and a GDP of 800,the price level is 100.

Which of the following is a problem with deflation?

Government debt monetization generally leads to inflation.

If the price of gasoline increased from $2.50 per gallon in 2006 to $3.50 per gallon in 2010,during which time the CPI increased from 203.1 to 220.2,then we can conclude that the real price of gasoline declined from 2006 to 2010.

One of the major costs of inflation is the decreased real purchasing power of wages that accompanies it.

The inflation rate is equal to the rate of change of the price level.

In times of rising prices,lenders will always benefit at the expense of borrowers.

The consumer price index measures the prices of:

In hyperinflationary situations,one might expect the velocity of money to increase.

When inflation functions as a type of tax,which of the following groups of people will be hurt the most?

An unexpected disinflation benefits lenders and harms borrowers.

For a tax system in which higher income earners pay a larger share of their incomes in taxes,a higher inflation rate:

Hungary holds the world record for the largest hyperinflation,set in 1945-1946.

Jordan loaned Taylor $1,200 on March 15,2009.Taylor returned $1,260 on March 14,2010.Inflation was 2% over the 1-year period.What is the real interest rate that Taylor paid?

Money is neutral in the long run but not in the short run.

Which measure of prices includes all of the final goods and services in a nation's output?

When an increase in the money supply is unexpected by firms and workers,real GDP:

Discuss the reasons for Zimbabwe's high inflation rate.

The Big Ideas

The Power of Trade

Supply and Demand

Equilibrium- How Supply and Demand

Price Ceilings and Floors

GDP and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth,capital Accumulation

Saving,investment,and the Financial System

Stock Markets and Personal Finance

Unemployment and Labor Force Participation

Business Fluctuations

Transmission and Amplification Mechanisms

The Federal Reserve System

Monetary Policy

The Federal Budget- Taxes and Spending

Fiscal Policy

International Trade

International Finance

Political Economy and Public Choice

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