Question 1

The total amount of output a country could reasonably produce if all of its people and capital resources were fully engaged is called:

Accepted Answer

A)  potential output.
B)  full output.
C)  positive output gap.
D)  economic growth.E) None of the above
F) A) and B)

Question 2

Demand pull inflation occurs when:

Accepted Answer

A)  the price of a key input increases suddenly.
B)  the price level changes in response to changes in the business cycle.
C)  the price of necessity goods increases suddenly.
D)  the business cycle becomes sporadic and unpredictable.E) B) and D)
F) A) and D)

Question 3

If the nominal interest rate is higher than the inflation rate,the value of your savings:

Accepted Answer

A)  will increase.
B)  will decrease.
C)  should remain about the same.
D)  Cannot say without knowing the beginning balance of savings.E) A) and D)
F) A) and C)

Question 4

Headline inflation:

Accepted Answer

A)  includes all of the goods the average consumer buys.
B)  is based on the CPI basket of goods.
C)  is measured using core inflation with the prices of food and gasoline added in.
D)  All of these statements are true.E) B) and C)
F) All of the above

Question 5

The NAIRU:

Accepted Answer

A)  is difficult to measure.
B)  can change over time.
C)  occurs at the economy's level of potential output.
D)  All of these statements are true.E) B) and D)
F) A) and D)

Question 6

Being penalized via taxes for making more money in dollars even though your purchasing power hasn't changed at all is called:

Accepted Answer

A)  tax distortion.
B)  shoe-leather costs.
C)  menu costs.
D)  the velocity of inflation.E) None of the above
F) A) and D)

Question 7

If the Fed were to push unemployment below NAIRU,it is likely that:

Accepted Answer

A)  inflation will get out of control.
B)  deflation will send the economy into a deflationary spiral.
C)  the dual mandate will be met.
D)  All of these statements are true.E) B) and C)
F) A) and D)

Question 8

Core inflation is:

Accepted Answer

A)  a measure of inflation using the CPI.
B)  a measure of inflation that excludes goods with historically volatile price changes.
C)  the BLS's official measure of changes in prices.
D)  All of these statements are true.E) A) and D)
F) B) and D)

Question 9

If an economy produces 3,000 units of output with a price level of $2 and the money supply (M) is $2,000,velocity is:

Accepted Answer

A)  2.
B)  3.
C)  67.
D)  150.E) A) and C)
F) A) and B)

Question 10

The velocity of money is:

Accepted Answer

A)  the number of transactions a typical dollar is used in during a given period.
B)  the number of goods a typical dollar can buy in a given period.
C)  how quickly money is created through the financial system.
D)  None of these statements is true.E) All of the above
F) A) and D)

Question 11

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) B) and C)
F) A) and C)

Question 12

When the prices of food and gasoline are added to core inflation,we get:

Accepted Answer

A)  core deflation.
B)  headline inflation.
C)  the CPI Index.
D)  adjusted inflation.E) A) and B)
F) B) and C)

Question 13

The real interest rate is:

Accepted Answer

A)  adjusted for inflation.
B)  the reported interest rate,not adjusted for inflation.
C)  the interest rate paid to savers.
D)  the interest rate charged to borrowers.E) A) and C)
F) B) and C)

Question 14

Cost pull inflation occurs when:

Accepted Answer

A)  the price of a key input increases suddenly.
B)  the price level changes in response to changes in the business cycle.
C)  the price of necessity goods increases suddenly.
D)  the business cycle becomes sporadic and unpredictable.E) A) and D)
F) B) and C)

Question 15

The short-run Phillips Curve is _________,and the long-run Phillips Curve is ________.

Accepted Answer

A)  downward sloping;vertical
B)  downward sloping;horizontal
C)  upward sloping;vertical
D)  upward sloping;horizontalE) A) and B)
F) C) and D)

Question 16

If the nominal interest rate is the same as the real interest rate,then inflation must be:

Accepted Answer

A)  zero.
B)  higher than the nominal rate of interest.
C)  lower than the nominal rate of interest.
D)  negative.E) B) and C)
F) B) and D)

Question 17

If an economy produces 1,000 units of output with a price level of $5 and the money supply (M) is $1,000,velocity is:

Accepted Answer

A)  5.
B)  200.
C)  50.
D)  2.E) B) and C)
F) A) and B)

Question 18

The quantity theory of money relies on which variable to remain constant?

Accepted Answer

A)  Velocity of money
B)  Money supply
C)  Price level
D)  None of these is held constant.E) A) and C)
F) B) and C)

Question 19

If an economy has a money supply of $200,a velocity of 12,and a price level of $2,the output level must be:

Accepted Answer

A)  1,200 units.
B)  2,400 units.
C)  600 units.
D)  6,000 units.E) A) and B)
F) C) and D)

Question 20

Conducting expansionary monetary policy when the economy is at its long-run equilibrium causes the Phillips Curve:

Accepted Answer

A)  to shift straight up.
B)  to shift straight down.
C)  to become less steep.
D)  to become more steep.E) A) and D)
F) B) and C)

Exam 32: Inflation

The velocity of money is:

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If an economy produces 3,000 units of output with a price level of $2 and the money supply (M) is $2,000,velocity is:

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If an economy produces 1,000 units of output with a price level of $5 and the money supply (M) is $1,000,velocity is:

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Core inflation is:

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The total amount of output a country could reasonably produce if all of its people and capital resources were fully engaged is called:

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Being penalized via taxes for making more money in dollars even though your purchasing power hasn't changed at all is called:

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The NAIRU:

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If the Fed were to push unemployment below NAIRU,it is likely that:

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Headline inflation:

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If the nominal interest rate is higher than the inflation rate,the value of your savings:

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The quantity theory of money relies on which variable to remain constant?

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If an economy has a money supply of $200,a velocity of 12,and a price level of $2,the output level must be:

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Conducting expansionary monetary policy when the economy is at its long-run equilibrium causes the Phillips Curve:

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When the prices of food and gasoline are added to core inflation,we get:

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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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The real interest rate is:

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If the nominal interest rate is the same as the real interest rate,then inflation must be:

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Demand pull inflation occurs when:

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The short-run Phillips Curve is _________,and the long-run Phillips Curve is ________.

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Cost pull inflation occurs when:

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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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The short-run Phillips Curve is _,and the long-run Phillips Curve is .

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