Question 1

One of the costs not associated with predictable inflation is:

Accepted Answer

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

Question 2

If an economy produces 5,000 units of output with a price level of $1 and with a velocity of money of 4, we know that the money supply must be:

Accepted Answer

A)   $4,000.
B)   $1,250.
C)   $2,500.
D)   $5,000.E) A) and C)
F) A) and B)

Question 3

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)   being penalized via taxes for making more money in dollars, even though real purchasing power hasn't changed.
D)   labor costs associated with inflation.E) A) and B)
F) All of the above

Question 4

The "Cross of Gold" speech was:

Accepted Answer

A)   in favor of the gold standard and was given in 1896.
B)   against the gold standard and was given in 1896.
C)   in favor of the gold standard and was given in 2008.
D)   against the gold standard and was given in 2008.E) A) and B)
F) None of the above

Question 5

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)   how quickly money will be accepted as a medium of exchange in a given period.E) A) and C)
F) None of the above

Question 6

________ inflation is more stable than __________ inflation, because it ____________.

Accepted Answer

A)   Core; headline; excludes food and gasoline prices
B)   Headline; core; excludes food and gasoline prices
C)   Core; headline; does not exclude food and gasoline prices
D)   Headline; core; does not exclude food and gasoline pricesE) A) and D)
F) A) and B)

Question 7

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 D)
F) B) and C)

Question 8

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 C)
F) B) and C)

Question 9

The constant velocity of money in the quantity equation implies that any increase in the money supply has to lead directly to:

Accepted Answer

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

Question 10

According to the quantity theory of money, increasing the money supply:

Accepted Answer

A)   leads to inflation.
B)   causes production to increase.
C)   leads to decreased spending.
D)   causes each dollar to be spent less often.E) B) and D)
F) A) and D)

Question 11

1 B)  E2 C)  E3 D)  E4 " class="answers-bank-image d-inline" rel="preload" > If the economy is in a recession, which point in the graph shown would likely represent this?

Accepted Answer

A)   E1
B)   E2
C)   E3
D)   E4 E) None of the above
F) All of the above

Question 12

To measure core inflation, the BLS removes goods that:

Accepted Answer

A)   have historically volatile prices.
B)   are considered necessities.
C)   are luxury goods.
D)   are durable and hold a constant value.E) B) and D)
F) A) and C)

Question 13

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

Accepted Answer

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

Question 14

Disinflation is the term for a period during which overall inflation rates are:

Accepted Answer

A)   positive and falling.
B)   negative.
C)   positive and increasing.
D)   zero.E) A) and B)
F) B) and D)

Question 15

The net result of deflation is to:

Accepted Answer

A)   reduce the level of aggregate demand in the economy.
B)   increase the level of aggregate demand in the economy.
C)   be neutral and not affect the aggregate demand in the economy.
D)   reduce the level of aggregate supply in the economy.E) C) and D)
F) None of the above

Question 16

When an economy experiences deflation, investment will:

Accepted Answer

A)   decrease, because businesses will not take out loans that will increase in value over time.
B)   increase, because businesses will take out loans that will increase in value.
C)   decrease, because businesses will spend cash instead of borrowing it.
D)   increase, because businesses will spend cash instead of borrowing it.E) A) and D)
F) None of the above

Question 17

Subtracting the inflation rate from the nominal rate of interest tells you the:

Accepted Answer

A)   nominal rate of return.
B)   real interest rate.
C)   real rate of inflation.
D)   price level of the economy.E) C) and D)
F) None of the above

Question 18

A measure of the average price level for GDP is called the:

Accepted Answer

A)   aggregate price level.
B)   national price level.
C)   economy price level.
D)   total price level.E) A) and B)
F) A) and C)

Question 19

If the Fed were to allow unemployment to remain at a higher level than NAIRU:

Accepted Answer

A)   It would lead to deflation.
B)   the dual mandate would be violated.
C)   they would fail to maintain full employment.
D)   All of these statements are true.E) B) and C)
F) All of the above

Question 20

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

Exam 16: Inflation

The "Cross of Gold" speech was:

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A measure of the average price level for GDP is called the:

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Disinflation is the term for a period during which overall inflation rates are:

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The velocity of money is:

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If the economy is in a recession, which point in the graph shown would likely represent this?

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________ inflation is more stable than __________ inflation, because it ____________.

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When an economy experiences deflation, investment will:

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The net result of deflation is to:

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If an economy produces 5,000 units of output with a price level of $1 and with a velocity of money of 4, we know that the money supply must be:

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If the Fed were to allow unemployment to remain at a higher level than NAIRU:

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One of the costs not associated with predictable inflation is:

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According to the quantity theory of money, increasing the money supply:

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Subtracting the inflation rate from the nominal rate of interest tells you the:

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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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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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Menu costs refer to:

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The constant velocity of money in the quantity equation implies that any increase in the money supply has to lead directly to:

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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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To measure core inflation, the BLS removes goods that:

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inflation is more stable than inflation, because it ______.

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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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