Question 1

Deflation _______consumption and investment, which _______.

Accepted Answer

A)   decreases; decreases aggregate demand
B)   decreases; maintains aggregate demand
C)   increases; maintains aggregate demandD) All of the above
E) B) and C)

Question 2

The _______ price level is a measure of the average price level for GDP.

Accepted Answer

A)   aggregate
B)   national
C)   economy
D)   totalE) C) and D)
F) A) and B)

Question 3

The graph shown displays various price and output levels in an economy. 3, what could be said about its unemployment? A)  There is higher unemployment than the natural rate. B)  There is lower unemployment than the natural rate. C)  The unemployment rate is near the natural rate. D)  The unemployment rate is zero." class="answers-bank-image d-inline" rel="preload" > If the economy is currently at point E3, what could be said about its unemployment?

Accepted Answer

A)   There is higher unemployment than the natural rate.
B)   There is lower unemployment than the natural rate.
C)   The unemployment rate is near the natural rate.
D)   The unemployment rate is zero.E) A) and B)
F) All of the above

Question 4

Nominal output is the _______ of goods and services produced and real output is the _______ of goods and services produced.

Accepted Answer

A)   dollar value; actual amount
B)   actual amount; dollar value
C)   actual amount; dollar value with inflation
D)   dollar value with inflation; dollar value without inflationE) None of the above
F) All of the above

Question 5

Subtracting the inflation rate from the nominal rate of interest gives us the:

Accepted Answer

A)   nominal rate of return.
B)   real interest rate.
C)   real rate of inflation.
D)   price level of the economy.E) B) and C)
F) C) and D)

Question 6

When a central bank uses contractionary monetary policy, _______ is most likely to occur.

Accepted Answer

A)   disinflation
B)   inflation
C)   deflation
D)   stagflationE) None of the above
F) All of the above

Question 7

When an economy experiences deflation, consumption decreases because:

Accepted Answer

A)   people will wait for prices to drop before spending.
B)   shoe-leather costs increase.
C)   savings accounts lose value.
D)   the prices of imports increase.E) C) and D)
F) B) and C)

Question 8

The graph shown displays various price and output levels in an economy. 1 B)  E 2 C)  E 3 D)  E 4" class="answers-bank-image d-inline" rel="preload" > Which point on the graph shown would represent an economic expansion?

Accepted Answer

A)   E 1
B)   E 2
C)   E 3
D)   E 4E) All of the above
F) A) and B)

Question 9

The inability to conduct expansionary monetary policy at the zero lower bound is also known as:

Accepted Answer

A)   stagflation.
B)   a liquidity trap.
C)   crowding out.
D)   Ricardian equivalence.E) All of the above
F) A) and B)

Question 10

Suppose the annual nominal interest rate is 4 percent and the inflation rate is 5 percent. If you deposit $1,000, at the end of the year:

Accepted Answer

A)   you will have earned a real rate of return of 1 percent.
B)   your purchasing power will have increased.
C)   your savings will have a nominal increase of $40.
D)   All of these statements are true.E) B) and D)
F) A) and B)

Question 11

If the real rate of return is 2 percent and the inflation rate is 2 percent, the nominal interest rate is:

Accepted Answer

A)   4 percent.
B)   2 percent.
C)   −2 percent.
D)   −4 percent.E) A) and B)
F) None of the above

Question 12

The quantity equation implies that any decrease in the money supply will lead directly to:

Accepted Answer

A)   an increase in the price level.
B)   a decrease in the price level.
C)   an increase in real output.
D)   a decrease in real output.E) None of the above
F) B) and D)

Question 13

The relationship between the money supply, output, and the overall price level is illustrated by the:

Accepted Answer

A)   classical theory of inflation.
B)   neutrality of money.
C)   aggregate price level.
D)   measure of real output.E) A) and C)
F) None of the above

Question 14

When the Fed conducts expansionary monetary policy, it _______ in the short run, but _______ in the long run.

Accepted Answer

A)   boosts demand; causes inflation
B)   causes inflation; boosts output
C)   causes inflation; boosts economic growth
D)   boosts demand; boosts supplyE) A) and B)
F) B) and D)

Question 15

If the Fed were to push unemployment below the NAIRU:

Accepted Answer

A)   inflation would likely increase.
B)   deflation would likely send the economy into a deflationary spiral.
C)   the dual mandate will have been met.
D)   the economy would be operating efficiently.E) None of the above
F) All of the above

Question 16

When interest rates are already at zero during a recession, a central bank would:

Accepted Answer

A)   have little leeway to further reduce interest rates in order to stimulate the economy.
B)   not be able to engage in any type of policy to stimulate the economy.
C)   need to spend more money in order to stimulate the economy.
D)   likely work with Congress to stimulate the economy.E) A) and D)
F) All of the above

Question 17

Deflation is a:

Accepted Answer

A)   sustained fall in the aggregate price level.
B)   sustained increase in the aggregate price level.
C)   steady, unchanging aggregate price level.
D)   steady fall in the exchange rate.E) C) and D)
F) None of the above

Question 18

The actual quantity of goods or services sold is measured in:

Accepted Answer

A)   nominal values.
B)   real values.
C)   aggregated values.
D)   intermediate values.E) B) and C)
F) A) and B)

Question 19

An overall rise in prices is called:

Accepted Answer

A)   inflation.
B)   deflation.
C)   the consumer price index.
D)   the producer price index.E) B) and C)
F) A) and B)

Question 20

Menu costs refer to:

Accepted Answer

A)   the money, time, and opportunity used to change prices to keep pace with inflation.
B)   the time, money, and effort one has to spend managing cash in the face of inflation.
C)   the higher taxes one must pay when earning a greater dollar amount, even though real purchasing power hasn't changed.
D)   the labor costs associated with inflation.E) All of the above
F) C) and D)

Exam 16: Inflation

An overall rise in prices is called:

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Nominal output is the _______ of goods and services produced and real output is the _______ of goods and services produced.

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When the Fed conducts expansionary monetary policy, it _______ in the short run, but _______ in the long run.

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Suppose the annual nominal interest rate is 4 percent and the inflation rate is 5 percent. If you deposit $1,000, at the end of the year:

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The relationship between the money supply, output, and the overall price level is illustrated by the:

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The quantity equation implies that any decrease in the money supply will lead directly to:

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When an economy experiences deflation, consumption decreases because:

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Deflation is a:

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Menu costs refer to:

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Deflation _______consumption and investment, which _______.

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When interest rates are already at zero during a recession, a central bank would:

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When a central bank uses contractionary monetary policy, _______ is most likely to occur.

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The graph shown displays various price and output levels in an economy. If the economy is currently at point E3, what could be said about its unemployment?

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The graph shown displays various price and output levels in an economy. Which point on the graph shown would represent an economic expansion?

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The actual quantity of goods or services sold is measured in:

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The _______ price level is a measure of the average price level for GDP.

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If the real rate of return is 2 percent and the inflation rate is 2 percent, the nominal interest rate is:

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If the Fed were to push unemployment below the NAIRU:

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Subtracting the inflation rate from the nominal rate of interest gives us the:

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The inability to conduct expansionary monetary policy at the zero lower bound is also known as:

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Nominal output is the _ of goods and services produced and real output is the _ of goods and services produced.

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When the Fed conducts expansionary monetary policy, it _ in the short run, but _ in the long run.

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Deflation _consumption and investment, which _.

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The graph shown displays various price and output levels in an economy. If the economy is currently at point E₃, what could be said about its unemployment?

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