Question 1

Core inflation is a measure of:

Accepted Answer

A)   inflation that excludes goods with historically volatile price changes.
B)   an overall rise in prices in the economy.
C)   the Consumer Price Index with durable goods excluded.
D)   the change in the Consumer Price Index with durable goods excluded.E) None of the above
F) B) and D)

Question 2

Inflation rates over the last 40 years have generally:

Accepted Answer

A)   decreased around the world.
B)   increased around the world.
C)   unchanged for developing nations and decreased for developed nations.
D)   decreased for developing nations and increased for developed nations.E) A) and D)
F) B) and C)

Question 3

The number of transactions a typical dollar is used in during a given period is called the:

Accepted Answer

A)   velocity of money.
B)   transaction rate.
C)   quantity theory of money.
D)   transaction velocity.E) All of the above
F) B) and C)

Question 4

Brian is paid monthly and typically takes $500 of his pay in cash to spend throughout the month, and the rest he leaves in an interest-bearing checking account. With the recent inflation, Brian finds it necessary to go to the bank every week, withdrawing $125 each time, so that his money can earn interest for as long as it can before Brian needs to withdraw it. The added hassle of going to the bank more often in response to inflation is called a:

Accepted Answer

A)   shoe-leather cost.
B)   menu cost.
C)   transactions cost.
D)   tax distortion.E) A) and B)
F) A) and C)

Question 5

If the value of your debt is decreasing over time, we know that:

Accepted Answer

A)   the real interest rate is negative.
B)   inflation is zero.
C)   the real interest rate is positive.
D)   the real interest rate is zero.E) A) and B)
F) None of the above

Question 6

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

Accepted Answer

A)   4 percent.
B)   2 percent.
C)   −2 percent.
D)   −4 percent.E) A) and D)
F) A) and C)

Question 7

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

Accepted Answer

A)   an increase in P.
B)   a decrease in P.
C)   an increase in Y.
D)   a decrease in Y.E) B) and C)
F) A) and D)

Question 8

When an economy experiences hyperinflation, it has:

Accepted Answer

A)   extremely long-lasting and painful increases in the price level that slows economic growth.
B)   a long period of low, steady inflation that aids in economic growth.
C)   extremely long-lasting and painful increases in the price level that encourages economic growth.
D)   a long period of stagnant economic growth, and inflationary tactics are used by the government to raise prices.E) A) and C)
F) None of the above

Question 9

According to the quantity theory of money, if there are fewer dollars available to spend on the same number of goods and services, then:

Accepted Answer

A)   the price level will fall.
B)   the price level will rise.
C)   output will decrease.
D)   output will increase.E) A) and C)
F) B) and D)

Question 10

Suppose the nominal interest rate is 10 percent annually, and you deposit $1,000. Inflation in the economy throughout the year is 4 percent. At the end of the year, you have earned a real rate of interest of:

Accepted Answer

A)   4 percent.
B)   6 percent.
C)   10 percent.
D)   14 percent.E) A) and D)
F) C) and D)

Question 11

Suppose the nominal interest rate is 4 percent annually, and you deposit $1,000. Inflation in the economy throughout the year is 5 percent. At the end of the year, you have earned:

Accepted Answer

A)   a real rate of return of 1 percent.
B)   an increase in your purchasing power.
C)   a nominal increase in your savings of $40.
D)   All of these statements are true.E) A) and B)
F) None of the above

Question 12

Unpredictable inflation can cause businesses to:

Accepted Answer

A)   have a hard time planning future production.
B)   cease production until they know how to adjust for inflation.
C)   restrict output and stockpile inventory.
D)   increase production due to expecting future price level changes.E) B) and C)
F) B) and D)

Question 13

When L.L. Bean decides to increase its prices due to general inflation, they must reprint the millions of catalogs they produce and distribute. The costs associated with doing so in response to inflation are called:

Accepted Answer

A)   menu costs.
B)   shoe-leather costs.
C)   tax distortions.
D)   printing costs.E) B) and C)
F) A) and B)

Question 14

A sustained fall in the aggregate price level is called:

Accepted Answer

A)   deflation.
B)   inflation.
C)   economic growth.
D)   economic decline.E) B) and D)
F) A) and B)

Question 15

The quantity theory of money states explicitly that the:

Accepted Answer

A)   value of money is determined by the overall quantity of money in existence.
B)   Real GDP is determined by the money supply.
C)   money supply is determined by the price level.
D)   there is no relationship between the value of money and the quantity of money in existence.E) C) and D)
F) None of the above

Question 16

When we consider our savings, interest rates _________ and inflation rates ___________ the value.

Accepted Answer

A)   increase; decrease
B)   decrease; increase
C)   increase; increase
D)   have no real effect; decreaseE) A) and D)
F) A) and B)

Question 17

If an economy produces 2,500 units of output with a money supply of $500 and a velocity of 10, we know the price level must be:

Accepted Answer

A)   $1.
B)   $5.
C)   $2.
D)   $10.E) A) and B)
F) A) and C)

Question 18

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) C) and D)
F) B) and C)

Question 19

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 be assessed without knowing the beginning balance of savings.E) B) and C)
F) None of the above

Question 20

Which measure of inflation best reflects underlying trends in the economy?

Accepted Answer

A)   Core inflation
B)   Headline inflation
C)   Overall inflation
D)   Nominal inflationE) None of the above
F) C) and D)

Exam 16: Inflation

If the value of your debt is decreasing over time, we know that:

Correct Answer
verified

Which measure of inflation best reflects underlying trends in the economy?

Correct Answer
verified

According to the quantity theory of money, if there are fewer dollars available to spend on the same number of goods and services, then:

Correct Answer
verified

When an economy experiences hyperinflation, it has:

Correct Answer
verified

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

Correct Answer
verified

When L.L. Bean decides to increase its prices due to general inflation, they must reprint the millions of catalogs they produce and distribute. The costs associated with doing so in response to inflation are called:

Correct Answer
verified

The quantity theory of money states explicitly that the:

Correct Answer
verified

If an economy produces 2,500 units of output with a money supply of $500 and a velocity of 10, we know the price level must be:

Correct Answer
verified

The number of transactions a typical dollar is used in during a given period is called the:

Correct Answer
verified

A sustained fall in the aggregate price level is called:

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Suppose the nominal interest rate is 4 percent annually, and you deposit $1,000. Inflation in the economy throughout the year is 5 percent. At the end of the year, you have earned:

Correct Answer
verified

Correct Answer
verified

Core inflation is a measure of:

Correct Answer
verified

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

Correct Answer
verified

Suppose the nominal interest rate is 10 percent annually, and you deposit $1,000. Inflation in the economy throughout the year is 4 percent. At the end of the year, you have earned a real rate of interest of:

Correct Answer
verified

When we consider our savings, interest rates _ and inflation rates ___ the value.

Correct Answer
verified

Unpredictable inflation can cause businesses to:

Correct Answer
verified

Inflation rates over the last 40 years have generally:

Correct Answer
verified

Exam 16: Inflation

If the value of your debt is decreasing over time, we know that:

Correct AnswerverifiedShow Answer

Which measure of inflation best reflects underlying trends in the economy?

Correct AnswerverifiedShow Answer

According to the quantity theory of money, if there are fewer dollars available to spend on the same number of goods and services, then:

Correct AnswerverifiedShow Answer

When an economy experiences hyperinflation, it has:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When L.L. Bean decides to increase its prices due to general inflation, they must reprint the millions of catalogs they produce and distribute. The costs associated with doing so in response to inflation are called:

Correct AnswerverifiedShow Answer

The quantity theory of money states explicitly that the:

Correct AnswerverifiedShow Answer

If an economy produces 2,500 units of output with a money supply of $500 and a velocity of 10, we know the price level must be:

Correct AnswerverifiedShow Answer

The number of transactions a typical dollar is used in during a given period is called the:

Correct AnswerverifiedShow Answer

A sustained fall in the aggregate price level is called:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose the nominal interest rate is 4 percent annually, and you deposit $1,000. Inflation in the economy throughout the year is 5 percent. At the end of the year, you have earned:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Core inflation is a measure of:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose the nominal interest rate is 10 percent annually, and you deposit $1,000. Inflation in the economy throughout the year is 4 percent. At the end of the year, you have earned a real rate of interest of:

Correct AnswerverifiedShow Answer

When we consider our savings, interest rates _________ and inflation rates ___________ the value.

Correct AnswerverifiedShow Answer

Unpredictable inflation can cause businesses to:

Correct AnswerverifiedShow Answer

Inflation rates over the last 40 years have generally:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

When we consider our savings, interest rates _ and inflation rates ___ the value.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified