Question 1

To compare the $1-an-hour your grandfather earned in 1950 with the $8-an-hour you earn today, you would need to:

Accepted Answer

A)   simply compare $1-an-hour to $8-an-hour.
B)   add the inflation rates in each year since 1950 until today and add this to your grandfather's wage.
C)   calculate real wages in both 1950 and today.
D)   calculate your grandfather's nominal wage in 1950 and compare it to your wage today.

Question 2

When inflation functions as a type of tax, which of the following groups of people will be hurt the most?

Accepted Answer

A)   people or businesses with deposits in a savings account that pays an interest rate higher than the rate of inflation
B)   people or businesses that invest in gold, silver, platinum, or other metals
C)   people who hold currency and coins in their wallet, purse, or at home
D)   people who invest their money in mutual funds

Question 3

Which of the following correctly represents deflation?

Accepted Answer

A)   E π\piπ  >  π\piπ 
B)   E π\piπ  π\piπ 
C)   E π\piπ  =  π\piπ 
D)   ( π\piπ < 0)

Question 4

The inflation rate is equal to the rate of change of the price level.

Accepted Answer

A) True 
 B)False

Question 5

Debt monetization means that a government pays off its debt by:

Accepted Answer

A)   lowering inflation.
B)   raising tax revenues.
C)   borrowing from foreigners.
D)   increasing the money supply.

Question 6

Use the following to answer questions: Table: CPI   Year  CPI (End-of-  Year Value)  1999110200011520011172002115\begin{array} { l c } \hline 	ext { Year } & \begin{array} { c } 	ext { CPI (End-of- } \	ext { Year Value)  }\end{array} \\hline 1999 & 110 \2000 & 115 \2001 & 117 \2002 & 115 \\hline\end{array} Year 1999200020012002​ CPI (End-of-  Year Value)  ​110115117115​​ 
-(Table: CPI)  According to the table, in which of the following years did this country experience deflation?

Accepted Answer

A)   2001 onlyA
B)   2002 only
C)   both 2001 and 2002
D)   neither 2001 nor 2002

Question 7

According to Nobel laureate Milton Friedman, "inflation is _____."

Accepted Answer

A)   a good thing
B)   found everywhere
C)   always present
D)   always and everywhere a monetary phenomenon

Question 8

If people expect an inflation rate of 3% and later it turns out to be 5%, then the real rate of return will be:

Accepted Answer

A)   less than the equilibrium rate.
B)   greater than the equilibrium rate.
C)   3%.
D)   5%.

Question 9

If the price level in 2018 is 150 and it rises to 165 in 2019, what is the rate of inflation between 2018 and 2019?

Accepted Answer

A)   9%
B)   10%
C)   15%
D)   165%

Question 10

According to the quantity theory of money, money growth in the long run:

Accepted Answer

A)   affects both real GDP growth and inflation.
B)   affects real GDP growth only.
C)   affects inflation only.
D)   has no effect on either real GDP growth or inflation.

Question 11

Which one of the following is NOT a cost of inflation?

Accepted Answer

A)   wasted resources associated with price confusion
B)   higher tax burdens if tax brackets are not adjusted for inflation
C)   wealth redistribution from private citizens to the government
D)   an automatic decrease in real wages throughout the period of inflation.

Question 12

A decrease in the inflation rate from 10% to 3% implies that deflation has occurred.

Accepted Answer

A) True 
 B)False

Question 13

If the average level of prices in an economy equals 100, the money supply equals $100,000, and the level of real output equals $5,000, then the velocity of money is:

Accepted Answer

A)  5.
B)  20.
C)  100.
D)  1,000.

Question 14

A real price is:

Accepted Answer

A)   an increase in the average level of the price of a good.
B)   a decrease in the average level of the price of a good.
C)   a price that has been corrected for inflation.
D)   the average number of times a dollar is spent on final goods and services in a year.

Question 15

If the velocity of money and real GDP are fixed, then the quantity theory of money implies that the price level will:

Accepted Answer

A)   increase at a lower rate than the growth in the money supply.
B)   increase at the same rate as the growth in the money supply.
C)   increase at a higher rate than the growth in the money supply.
D)   be unrelated to the growth in the money supply.

Question 16

Which measure of the average price level most closely corresponds to a student's daily economic activities?

Accepted Answer

A)   consumer price index
B)   producer price index
C)   GDP deflator
D)   household price index

Question 17

Money illusion occurs when people:

Accepted Answer

A)   correctly see changes in nominal prices.
B)   correctly see changes in real prices.
C)   see changes in real prices and mistake them for changes in nominal prices.
D)   see changes in nominal prices and mistake them for changes in real prices.

Question 18

The quantity theory of money:

Accepted Answer

A)   describes the general relationship between money, velocity, real output, and prices.
B)   presents the critical roles of money demand in regulating the level of prices.
C)   derives the optimal quantity of inflation.
D)   explains the equilibrium between money supply and money demand.

Question 19

Use the following to answer questions: Table: Anticipating Inflation   Year  Predicted Inflation Rate  Actual Inflation Rate 20003%3%20013%2%20027%9%20035%4%20044%7%\begin{array} { l c c } \hline 	ext { Year } & 	ext { Predicted Inflation Rate } & 	ext { Actual Inflation Rate } \\hline 2000 & 3 \% & 3 \% \2001 & 3 \% & 2 \% \2002 & 7 \% & 9 \% \2003 & 5 \% & 4 \% \2004 & 4 \% & 7 \% \\hline\end{array} Year 20002001200220032004​ Predicted Inflation Rate 3%3%7%5%4%​ Actual Inflation Rate 3%2%9%4%7%​​ 
-(Table: Anticipating Inflation)  Using the inflation data in the table above, assume that all loan contracts have fixed nominal interest rates of 10% and mature after one year. Which year did lenders gain relative to borrowers?

Accepted Answer

A)   2000
B)   2002
C)   2003
D)   2004

Question 20

Which measure of prices includes all of the final goods and services in a nation's output?

Accepted Answer

A)   consumer price index
B)   the GDP deflator
C)   producer price index
D)   the exchange rate

Exam 12: Inflation and the Quantity Theory of Money

Which one of the following is NOT a cost of inflation?

Correct Answer
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Which of the following correctly represents deflation?

Correct Answer
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Correct Answer
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The quantity theory of money:

Correct Answer
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According to the quantity theory of money, money growth in the long run:

Correct Answer
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Correct Answer
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If the velocity of money and real GDP are fixed, then the quantity theory of money implies that the price level will:

Correct Answer
verified

When inflation functions as a type of tax, which of the following groups of people will be hurt the most?

Correct Answer
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According to Nobel laureate Milton Friedman, "inflation is _____."

Correct Answer
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If the average level of prices in an economy equals 100, the money supply equals $100,000, and the level of real output equals $5,000, then the velocity of money is:

Correct Answer
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A real price is:

Correct Answer
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The inflation rate is equal to the rate of change of the price level.

Correct Answer
verified

A decrease in the inflation rate from 10% to 3% implies that deflation has occurred.

Correct Answer
verified

If the price level in 2018 is 150 and it rises to 165 in 2019, what is the rate of inflation between 2018 and 2019?

Correct Answer
verified

Which measure of the average price level most closely corresponds to a student's daily economic activities?

Correct Answer
verified

Money illusion occurs when people:

Correct Answer
verified

Which measure of prices includes all of the final goods and services in a nation's output?

Correct Answer
verified

Debt monetization means that a government pays off its debt by:

Correct Answer
verified

To compare the $1-an-hour your grandfather earned in 1950 with the $8-an-hour you earn today, you would need to:

Correct Answer
verified

If people expect an inflation rate of 3% and later it turns out to be 5%, then the real rate of return will be:

Correct Answer
verified

Exam 12: Inflation and the Quantity Theory of Money

Which one of the following is NOT a cost of inflation?

Correct AnswerverifiedShow Answer

Which of the following correctly represents deflation?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The quantity theory of money:

Correct AnswerverifiedShow Answer

According to the quantity theory of money, money growth in the long run:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the velocity of money and real GDP are fixed, then the quantity theory of money implies that the price level will:

Correct AnswerverifiedShow Answer

When inflation functions as a type of tax, which of the following groups of people will be hurt the most?

Correct AnswerverifiedShow Answer

According to Nobel laureate Milton Friedman, "inflation is _____."

Correct AnswerverifiedShow Answer

If the average level of prices in an economy equals 100, the money supply equals $100,000, and the level of real output equals $5,000, then the velocity of money is:

Correct AnswerverifiedShow Answer

A real price is:

Correct AnswerverifiedShow Answer

The inflation rate is equal to the rate of change of the price level.

Correct AnswerverifiedShow Answer

A decrease in the inflation rate from 10% to 3% implies that deflation has occurred.

Correct AnswerverifiedShow Answer

If the price level in 2018 is 150 and it rises to 165 in 2019, what is the rate of inflation between 2018 and 2019?

Correct AnswerverifiedShow Answer

Which measure of the average price level most closely corresponds to a student's daily economic activities?

Correct AnswerverifiedShow Answer

Money illusion occurs when people:

Correct AnswerverifiedShow Answer

Which measure of prices includes all of the final goods and services in a nation's output?

Correct AnswerverifiedShow Answer

Debt monetization means that a government pays off its debt by:

Correct AnswerverifiedShow Answer

To compare the $1-an-hour your grandfather earned in 1950 with the $8-an-hour you earn today, you would need to:

Correct AnswerverifiedShow Answer

If people expect an inflation rate of 3% and later it turns out to be 5%, then the real rate of return will be:

Correct AnswerverifiedShow Answer

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