Question 1

According to the text, if individuals base their expectations on economic models we say that their expectations are:

Accepted Answer

A)  rational.
B)  historical.
C)  adaptive.
D)  extrapolative.

Question 2

Economists who accept the quantity theory of money favor a monetary rule because they believe the short-run effects of monetary policy are unpredictable and the long-run effects are on the price level, not real output.

Accepted Answer

A) True 
 B)False

Question 3

If there is inflation

Accepted Answer

A)  the unit of account function of money is improved
B)  the unit of account function of money is undermined.
C)  the distributional function of money is improved
D)  the distributional function of money is undermined.

Question 4

If productivity growth is 2 percent and inflation is 5 percent, on average nominal wage increases will be:

Accepted Answer

A)  2 percent.
B)  3 percent.
C)  5 percent.
D)  7 percent.

Question 5

A central policy concern about inflation is to see that it

Accepted Answer

A)  does not become built into expectations
B)  does not redistribute income
C)  does redistribute income
D)  does become built into expectations

Question 6

The short-run Phillips curve shifts around because of changes in:

Accepted Answer

A)  the money supply.
B)  expectations of employment.
C)  expectations of inflation.
D)  expectations of real income.

Question 7

A reason why the quantity theory of money is problematic is that:

Accepted Answer

A)  money supply increases generally affect only goods prices.
B)  the Fed generally runs expansionary monetary policy.
C)  the velocity of money has fluctuated over time.
D)  real output rises during expansions and falls during contractions.

Question 8

Inflation:

Accepted Answer

A)  can obscure relative price changes.
B)  redistributes income from those who can raise prices to those who cannot.
C)  can undermine faith in the monetary system, the economy, and the government if it is high enough.
D)  makes society poorer on average.

Question 9

If inflation is highly volatile, money is

Accepted Answer

A)  more valuable because you need more of it
B)  less valuable because there is less of it.
C)  more valuable because its unit of account function is reduced
D)  less valuable because its unit of account function is reduced.

Question 10

If global prices are lower than domestic prices, the short-run Phillips curve is likely to be horizontal.

Accepted Answer

A) True 
 B)False

Question 11

Inflationary pressures increase when the economy moves:

Accepted Answer

A)  to the right of the long-run Phillips curve.
B)  to the left of the long-run Phillips curve.
C)  down the short-run Phillips curve.
D)  down the long-run Phillips curve.

Question 12

Which of the following is not one of the assumptions of the quantity theory of money?

Accepted Answer

A)  Velocity is constant
B)  The money growth rate is constant
C)  Real output is independent of the money supply
D)  Causation goes from money supply to prices

Question 13

If the economy is at Point A in the Phillips curve graph shown, in the long run the unemployment would be expected to:

Accepted Answer

A)  increase.
B)  decrease.
C)  remain constant.
D)  immediately fall to zero.

Question 14

In an unexpected inflation, lenders will generally:

Accepted Answer

A)  gain relative to borrowers.
B)  lose relative to borrowers.
C)  neither gain nor lose relative to borrowers.
D)  The effect will be totally random.

Question 15

The higher the rate of inflation, the lower the:

Accepted Answer

A)  real interest rate can fall as long as it is positive
B)  nominal interest rate can fall as long as it is positive
C)  nominal interest rate can fall
D)  real interest rate can fall

Question 16

Refer to the graph shown.  Suppose an economy begins at point B but then adopts a contractionary monetary policy.In the short run, this policy would most likely:

Accepted Answer

A)  reduce inflation to 3 percent and raise unemployment to 7.5 percent.
B)  reduce inflation to 3 percent and reduce unemployment to 4 percent.
C)  raise inflation to 9 percent and raise unemployment to 7.5 percent.
D)  raise inflation to 9 percent and reduce unemployment to 4 percent.

Question 17

If actual inflation is correctly expected and built into people's wage and price setting decisions, the Phillips curve:

Accepted Answer

A)  becomes a horizontal line.
B)  becomes a vertical line.
C)  remains a downward sloping line.
D)  becomes an upward sloping line.

Question 18

The prices of assets are included in standard measures of inflation.

Accepted Answer

A) True 
 B)False

Question 19

The institutionalist theory of inflation differs from that of the quantity theory by focusing on:

Accepted Answer

A)  how firms determine wages and prices.
B)  the equation of exchange.
C)  the rate of growth in the money supply.
D)  the institutions that determine how the money supply is determined.

Question 20

Globalization will tend to:

Accepted Answer

A)  flatten the short-run Phillips curve.
B)  flatten the long-run Phillips curve.
C)  shift the short-run Phillips curve.
D)  shift the long-run Phillips curve.

Exam 34: Inflation, Deflation, and Macro Policy

If global prices are lower than domestic prices, the short-run Phillips curve is likely to be horizontal.

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If productivity growth is 2 percent and inflation is 5 percent, on average nominal wage increases will be:

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The institutionalist theory of inflation differs from that of the quantity theory by focusing on:

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Which of the following is not one of the assumptions of the quantity theory of money?

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A reason why the quantity theory of money is problematic is that:

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If inflation is highly volatile, money is

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In an unexpected inflation, lenders will generally:

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Globalization will tend to:

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Economists who accept the quantity theory of money favor a monetary rule because they believe the short-run effects of monetary policy are unpredictable and the long-run effects are on the price level, not real output.

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According to the text, if individuals base their expectations on economic models we say that their expectations are:

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If the economy is at Point A in the Phillips curve graph shown, in the long run the unemployment would be expected to:

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Inflationary pressures increase when the economy moves:

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The short-run Phillips curve shifts around because of changes in:

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The higher the rate of inflation, the lower the:

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Refer to the graph shown. Suppose an economy begins at point B but then adopts a contractionary monetary policy.In the short run, this policy would most likely:

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If actual inflation is correctly expected and built into people's wage and price setting decisions, the Phillips curve:

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A central policy concern about inflation is to see that it

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If there is inflation

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The prices of assets are included in standard measures of inflation.

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Inflation:

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