Question 1

To calculate the real interest rate, we:

Accepted Answer

A)   add the rate of inflation to the nominal interest rate.
B)   subtract the rate of inflation from the nominal interest rate.
C)   subtract the nominal interest rate from the rate of inflation.
D)   divide the nominal interest earned by the rate of inflation.E) A) and C)
F) A) and B)

Question 2

The graph shown displays various price and output levels in an economy. 1, 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 E1, 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) B) and D)
F) B) and C)

Question 3

Holding a currency to the gold standard:

Accepted Answer

A)   helps savers at the expense of borrowers.
B)   helps borrowers at the expense of savers.
C)   hurts both savers and borrowers.
D)   benefits both savers and borrowers.E) B) and D)
F) A) and B)

Question 4

If an economy produces 3,000 units of output when the money supply is $500 and the velocity of money is 9, what is the price level?

Accepted Answer

A)   $1.50
B)   $2
C)   $4.50
D)   $9E) All of the above
F) B) and C)

Question 5

Being penalized for earning a higher dollar amount even though your purchasing power hasn't changed is known as:

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 6

A sustained fall in the aggregate price level is called:

Accepted Answer

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

Question 7

If the real rate of return is 0 percent and the inflation rate is 3 percent, the nominal interest rate is:

Accepted Answer

A)   0 percent.
B)   3 percent.
C)   −3 percent.
D)   6 percent.E) A) and C)
F) A) and B)

Question 8

Unpredictable inflation can lead businesses to:

Accepted Answer

A)   experience difficulty when 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 expected price level changes.E) All of the above
F) B) and C)

Question 9

Demand-pull inflation occurs when the:

Accepted Answer

A)   price of a key input increases suddenly.
B)   price level changes in response to changes in the business cycle.
C)   price of food or energy increases suddenly.
D)   business cycle becomes sporadic and unpredictable.E) None of the above
F) B) and C)

Question 10

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

Accepted Answer

A)   core deflation.
B)   headline inflation.
C)   hyperinflation.
D)   adjusted inflation.E) All of the above
F) A) and B)

Question 11

If the value of your savings is increasing over time, it must be true that the inflation rate:

Accepted Answer

A)   is higher than the nominal interest rate.
B)   is lower than the nominal interest rate.
C)   is equal to the nominal interest rate.
D)   is zero.E) All of the above
F) A) and D)

Question 12

The time, money, and effort one spends managing cash in the face of inflation is referred to as:

Accepted Answer

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

Question 13

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

Accepted Answer

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

Question 14

If the real rate of return is 2 percent and the inflation rate is 0 percent, the nominal interest rate is:

Accepted Answer

A)   2 percent.
B)   0 percent.
C)   4 percent.
D)   −2 percent.E) B) and C)
F) All of the above

Question 15

If inflation is zero percent, nominal interest rates will be:

Accepted Answer

A)   equal to real interest rates.
B)   larger than real interest rates.
C)   smaller than real interest rates.
D)   equal to the optimal rate.E) B) and C)
F) A) and D)

Question 16

Suppose the annual nominal interest rate is 10percent and the inflation rate is 6 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 4 percent.
B)   your purchasing power will have increased.
C)   your savings will have nominal increased by $100.
D)   All of these statements are true.E) A) and C)
F) B) and C)

Question 17

A news article states the following: "Inflation moved ahead by 2.1 percent this quarter, an increase largely driven by changes in the price of gasoline." Which measure of inflation is the report describing?

Accepted Answer

A)   Core inflation
B)   Headline inflation
C)   The Producer Price Index
D)   The GDP deflatorE) B) and C)
F) All of the above

Question 18

When an economy is experiencing a negative output gap, there is:

Accepted Answer

A)   deflationary pressure due to low demand.
B)   inflationary pressure due to high demand.
C)   a reduction in purchasing power caused by an inflation rate that is higher than the nominal interest rate.
D)   an increase in inflation that puts it at a higher level than output.E) A) and D)
F) B) and C)

Question 19

Severe oil shortages in the United States during the 1970s created:

Accepted Answer

A)   cost-push inflation.
B)   demand-pull inflation.
C)   a recession.
D)   an increase in the velocity of money.E) A) and C)
F) C) and D)

Question 20

The graph shown displays various price and output levels in an economy. 2, what would be the impact of expansionary monetary policy? A)  Higher prices and higher output B)  Higher prices and lower output C)  Lower prices and higher output D)  Lower prices and lower output" class="answers-bank-image d-inline" rel="preload" > If the economy is currently at point E2, what would be the impact of expansionary monetary policy?

Accepted Answer

A)   Higher prices and higher output
B)   Higher prices and lower output
C)   Lower prices and higher output
D)   Lower prices and lower outputE) All of the above
F) B) and C)

Exam 16: Inflation

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

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A news article states the following: "Inflation moved ahead by 2.1 percent this quarter, an increase largely driven by changes in the price of gasoline." Which measure of inflation is the report describing?

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Demand-pull inflation occurs when the:

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Holding a currency to the gold standard:

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To calculate the real interest rate, we:

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The graph shown displays various price and output levels in an economy. If the economy is currently at point E1, what could be said about its unemployment?

Correct AnswerverifiedShow Answer

Severe oil shortages in the United States during the 1970s created:

Correct AnswerverifiedShow Answer

If an economy produces 3,000 units of output when the money supply is $500 and the velocity of money is 9, what is the price level?

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Unpredictable inflation can lead businesses to:

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Being penalized for earning a higher dollar amount even though your purchasing power hasn't changed is known as:

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A sustained fall in the aggregate price level is called:

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If inflation is zero percent, nominal interest rates will be:

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

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If the real rate of return is 0 percent and the inflation rate is 3 percent, the nominal interest rate is:

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If the value of your savings is increasing over time, it must be true that the inflation rate:

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When an economy is experiencing a negative output gap, there is:

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The graph shown displays various price and output levels in an economy. If the economy is currently at point E2, what would be the impact of expansionary monetary policy?

Correct AnswerverifiedShow Answer

If the real rate of return is 2 percent and the inflation rate is 0 percent, the nominal interest rate is:

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Suppose the annual nominal interest rate is 10percent and the inflation rate is 6 percent. If you deposit $1,000, at the end of the year:

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The time, money, and effort one spends managing cash in the face of inflation is referred to as:

Correct AnswerverifiedShow Answer

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The graph shown displays various price and output levels in an economy. If the economy is currently at point E₁, what could be said about its unemployment?

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The graph shown displays various price and output levels in an economy. If the economy is currently at point E₂, what would be the impact of expansionary monetary policy?

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