Question 1

In order to meet the dual mandate, the Fed must:

Accepted Answer

A)   maintain price stability.
B)   maintain full employment.
C)   keep unemployment levels near the NAIRU.
D)   All of these statements are true.E) A) and C)
F) A) and B)

Question 2

While the __________ is not important, the _________ can have a big effect on economic behavior.

Accepted Answer

A)   price level; unpredicted change in the price level
B)   unpredicted change in the price level; price level
C)   price level; predictable change in the price level
D)   predictable change in the price level; price levelE) C) and D)
F) A) and C)

Question 3

If an economy produces 1,000 units of output with a price level of $1 and the money supply (M)  is $500, velocity is:

Accepted Answer

A)   2.
B)   500.
C)   50.
D)   5.E) None of the above
F) All of the above

Question 4

If the real rate of return is 5 percent, and the inflation rate is 2 percent, then the nominal interest rate must be:

Accepted Answer

A)   7 percent.
B)   3 percent.
C)   −3 percent.
D)   −7 percent.E) B) and C)
F) All of the above

Question 5

Temporary changes in the price level caused by changes in the business cycle are called:

Accepted Answer

A)   demand pull inflation.
B)   cost push inflation.
C)   demand push inflation.
D)   cost pull inflation.E) All of the above
F) C) and D)

Question 6

If unemployment is below the NAIRU, inflation generally:

Accepted Answer

A)   accelerates.
B)   decelerates.
C)   becomes negative.
D)   gets caught in a downward spiral.E) B) and D)
F) B) and C)

Question 7

2, which action is the Fed most likely to undertake? A)  Expansionary monetary policy, because it will shift AD to the right. B)  Contractionary monetary policy, because it will shift AD to the left. C)  Expansionary monetary policy, because it will shift AD to the left. D)  Contractionary monetary policy, because it will shift AS to the right." class="answers-bank-image d-inline" rel="preload" > If the economy is represented in the graph shown and is currently at point E2, which action is the Fed most likely to undertake?

Accepted Answer

A)   Expansionary monetary policy, because it will shift AD to the right.
B)   Contractionary monetary policy, because it will shift AD to the left.
C)   Expansionary monetary policy, because it will shift AD to the left.
D)   Contractionary monetary policy, because it will shift AS to the right.E) C) and D)
F) B) and C)

Question 8

An overall rise in prices in the economy is called:

Accepted Answer

A)   inflation.
B)   deflation.
C)   core inflation.
D)   core deflation.E) A) and D)
F) C) and D)

Question 9

If an economy produces 3,000 units of output with a price level of $2 and with a velocity of money of 12, we know that the money supply must be:

Accepted Answer

A)   $1,000.
B)   $500.
C)   $2,000.
D)   $4,000.E) B) and C)
F) A) and D)

Question 10

Which measure of inflation best reflects changing prices for the average consumer?

Accepted Answer

A)   Headline inflation
B)   Core inflation
C)   Hyper inflation
D)   Nominal inflationE) A) and B)
F) A) and C)

Question 11

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

Accepted Answer

A)   inflation will increase.
B)   deflation will send the economy into a deflationary spiral.
C)   the dual mandate will be met.
D)   the economy would be operating efficiently.E) B) and D)
F) A) and D)

Question 12

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 C)
F) A) and D)

Question 13

The line that shows the connection between inflation and unemployment in the short run is called the:

Accepted Answer

A)   Phillips Curve.
B)   inflation-employment trade-off.
C)   price-work curve.
D)   aggregate supply.E) A) and B)
F) B) and C)

Question 14

The aggregate price level is:

Accepted Answer

A)   a measure of the average price level for GDP.
B)   measured by the CPI.
C)   measured by the GDP price deflator.
D)   All of these statements are true.E) A) and B)
F) A) and C)

Question 15

The money, time, and opportunity used to change prices to keep pace with inflation are called:

Accepted Answer

A)   menu costs.
B)   shoe-leather costs.
C)   tax distortions.
D)   the velocity of inflation.E) A) and D)
F) A) and C)

Question 16

If the Fed doubled the money supply in one day, the amount of goods and services traded would:

Accepted Answer

A)   not change.
B)   increase.
C)   decrease.
D)   collapse.E) None of the above
F) A) and D)

Question 17

The quantity equation states:

Accepted Answer

A)   M ×V = P ×Y.
B)   M ×P = Y ×V.
C)   P ×V = M ×Y.
D)   M ×Y = P ×VE) None of the above
F) All of the above

Question 18

Suppose the nominal interest rate is 7 percent annually, and you deposit $1,000. Inflation in the economy throughout the year is 7 percent. At the end of the year, you have earned:

Accepted Answer

A)   an increase in your purchasing power.
B)   no increase in your purchasing power.
C)   no increase in your savings.
D)   a decrease in your purchasing power.E) A) and B)
F) A) 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) None of the above
F) C) and D)

Question 20

Most economists agree that modest inflation is desirable over zero inflation because:

Accepted Answer

A)   it helps firms to more easily adjust real wages.
B)   it allows a margin of error for those deciding on the money supply.
C)   it allows the Fed to more easily engage in expansionary monetary policy.
D)   All of these statements are true.E) B) and C)
F) A) and D)

Exam 16: Inflation

If the real rate of return is 5 percent, and the inflation rate is 2 percent, then the nominal interest rate must be:

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If the Fed doubled the money supply in one day, the amount of goods and services traded would:

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The quantity equation states:

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Most economists agree that modest inflation is desirable over zero inflation because:

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While the __________ is not important, the _________ can have a big effect on economic behavior.

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The NAIRU:

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Suppose the nominal interest rate is 7 percent annually, and you deposit $1,000. Inflation in the economy throughout the year is 7 percent. At the end of the year, you have earned:

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If the economy is represented in the graph shown and is currently at point E2, which action is the Fed most likely to undertake?

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

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If an economy produces 1,000 units of output with a price level of $1 and the money supply (M) is $500, velocity is:

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Which measure of inflation best reflects changing prices for the average consumer?

Correct AnswerverifiedShow Answer

The line that shows the connection between inflation and unemployment in the short run is called the:

Correct AnswerverifiedShow Answer

Temporary changes in the price level caused by changes in the business cycle are called:

Correct AnswerverifiedShow Answer

In order to meet the dual mandate, the Fed must:

Correct AnswerverifiedShow Answer

An overall rise in prices in the economy is called:

Correct AnswerverifiedShow Answer

The money, time, and opportunity used to change prices to keep pace with inflation are called:

Correct AnswerverifiedShow Answer

If unemployment is below the NAIRU, inflation generally:

Correct AnswerverifiedShow Answer

If an economy produces 3,000 units of output with a price level of $2 and with a velocity of money of 12, we know that the money supply must be:

Correct AnswerverifiedShow Answer

The aggregate price level is:

Correct AnswerverifiedShow Answer

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While the __ is not important, the _ can have a big effect on economic behavior.

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If the economy is represented in the graph shown and is currently at point E₂, which action is the Fed most likely to undertake?

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