Question 1

The nominal interest rate is:

Accepted Answer

A)  not adjusted for inflation.
B)  the interest rate paid to savers.
C)  the interest rate paid to borrowers.
D)  None of these is true.E) B) and C)
F) A) and D)

Question 2

One of the costs associated with predictable inflation is:

Accepted Answer

A)  menu costs.
B)  shoe-leather costs.
C)  tax distortions.
D)  All of these are costs of inflation.E) All of the above
F) B) and D)

Question 3

Historically,velocity has been:

Accepted Answer

A)  relatively stable,though the recent crisis has temporarily caused some significant changes.
B)  relatively stable,though the Great Depression of the 1930s caused some significant fluctuations.
C)  in sync with the business cycle,slowing during times of decline and increasing with recovery.
D)  in sync with the business cycle,increasing during times of decline and increasing with recovery.E) A) and B)
F) A) and C)

Question 4

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

Accepted Answer

A)  the real rate of interest is positive.
B)  inflation is zero.
C)  the real rate of interest is negative.
D)  the real rate of interest is zero.E) A) and C)
F) C) and D)

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

Question 6

According to the quantity theory of money,an increase in the money supply leads to:

Accepted Answer

A)  an increase in prices,as there are more dollar bills spent on the same number of goods and services.
B)  an increase in prices,as there are the same dollar bills spent on a greater number of goods and services.
C)  a decrease in prices,as there are more dollar bills spent on the same number of goods and services.
D)  a decrease in price,as there are the same dollar bills spent on a greater number of goods and services.E) A) and D)
F) B) and D)

Question 7

The velocity of money is:

Accepted Answer

A)  how many times the average dollar gets spent per year.
B)  the number of transactions in which a typical dollar is used during a year.
C)  how many times on average the typical dollar changes hands in an exchange during the year.
D)  All of these statements are true.E) A) and C)
F) All of the above

Question 8

In order to meet the dual mandate,the Fed must:

Accepted Answer

A)  maintain price stability.
B)  maintain full employment.
C)  keep unemployment levels near the NAIRU.
D)  All of these statements are true.E) A) and D)
F) None of the above

Question 9

One of the costs associated with predictable inflation is:

Accepted Answer

A)  tax distortions.
B)  budget charges.
C)  overheads.
D)  None of these is a cost of inflation.E) A) and C)
F) A) and B)

Question 10

The classical theory of inflation illustrates the relationship between:

Accepted Answer

A)  money supply,output,and the overall level of prices.
B)  spending,saving,and the overall price level.
C)  savings,investment,and the interest rate.
D)  None of these statements is true.E) A) and B)
F) All of the above

Question 11

If unemployment is below the NAIRU,inflation generally:

Accepted Answer

A)  accelerates.
B)  decelerates.
C)  becomes negative.
D)  gets caught in a downward spiral.E) A) and B)
F) A) and C)

Question 12

Kim is paid $50,000 per year,and pays an annual income tax of 10 percent.Due to an inflation rate of 10 percent,her pay increases to $55,000,which puts her in a higher tax bracket where she must pay 20 percent.Which of the following can be said of Kim?

Accepted Answer

A)  Inflation caused her to be taxed more heavily and decreased her purchasing power.
B)  Inflation caused her to be taxed more heavily and increased her purchasing power.
C)  Her raise reflects the inflation rate,and therefore her purchasing power is unchanged.
D)  None of these statements is true.E) B) and C)
F) A) and D)

Question 13

Headline inflation is:

Accepted Answer

A)  core inflation with the prices of food and gasoline added in.
B)  overall inflation in the economy.
C)  used only by the media for discussing inflation.
D)  All of these statements are true.E) A) and B)
F) C) and D)

Question 14

The money supply and velocity of money tell us:

Accepted Answer

A)  the price value of real output.
B)  the real output.
C)  the nominal value with inflation accounted for.
D)  None of these statements is true.E) A) and B)
F) None of the above

Question 15

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

Accepted Answer

A)  real interest rate is positive.
B)  nominal rate of interest is positive.
C)  inflation rate is less than the nominal interest rate.
D)  All of these statements are true.E) All of the above
F) B) and C)

Question 16

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 C)
F) B) and C)

Question 17

Suppose the nominal interest rate is 10 percent annually,and you deposit $1,000.Inflation in the economy throughout the year is 6 percent.At the end of the year,you have earned:

Accepted Answer

A)  a real rate of return of 4 percent.
B)  an increase in your purchasing power.
C)  a nominal increase in your savings of $100.
D)  All of these statements are true.E) C) and D)
F) None of the above

Question 18

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) None of the above
F) A) and D)

Question 19

The real interest rate is:

Accepted Answer

A)  the everyday notion of the interest rate.
B)  adjusted for inflation.
C)  the amount of interest the bank pays you for saving or charges you for borrowing.
D)  All of these statements are true.E) B) and D)
F) A) and C)

Question 20

If an economy produces 2,000 units of output with a price level of $2 and the money supply (M) is $1,000,velocity is:

Accepted Answer

A)  4.
B)  500.
C)  1.
D)  2.E) A) and B)
F) B) and D)

Exam 32: Inflation

One of the costs associated with predictable inflation is:

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According to the quantity theory of money,an increase in the money supply leads to:

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

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The nominal interest rate is:

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

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Headline inflation is:

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One of the costs associated with predictable inflation is:

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If an economy produces 2,000 units of output with a price level of $2 and the money supply (M) is $1,000,velocity is:

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Suppose the nominal interest rate is 10 percent annually,and you deposit $1,000.Inflation in the economy throughout the year is 6 percent.At the end of the year,you have earned:

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The classical theory of inflation illustrates the relationship between:

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Historically,velocity has been:

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

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

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The money supply and velocity of money tell us:

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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:

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In order to meet the dual mandate,the Fed must:

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Kim is paid $50,000 per year,and pays an annual income tax of 10 percent.Due to an inflation rate of 10 percent,her pay increases to $55,000,which puts her in a higher tax bracket where she must pay 20 percent.Which of the following can be said of Kim?

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The velocity of money is:

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If unemployment is below the NAIRU,inflation generally:

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The real interest rate is:

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