Question 1

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 2

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.

Question 3

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 4

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 5

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 6

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 7

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 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

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 10

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 11

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 12

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 13

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

Accepted Answer

A) True 
 B)False

Question 14

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 15

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 16

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 17

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 18

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 19

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 20

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

Exam 34: Inflation, Deflation, and Macro Policy

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

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

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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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Inflationary pressures increase when the economy moves:

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If inflation is highly volatile, money is

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

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The higher the rate of inflation, the lower the:

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In an unexpected inflation, lenders will generally:

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

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Globalization will tend to:

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

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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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If there is inflation

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

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

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Inflation:

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A central policy concern about inflation is to see that it

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