Question 1

________ inflation is more stable than __________ inflation, because it excludes food and gasoline prices.

Accepted Answer

A)   Core; headline
B)   Headline; core
C)   Core; nominal
D)   Nominal; core

Question 2

3, then the economy must be in: A)  long-run equilibrium. B)  a recession. C)  an economic boom. D)  an economic recovery." class="answers-bank-image d-inline" rel="preload" > If the economy is represented in the graph shown and is currently at point E3, then the economy must be in:

Accepted Answer

A)   long-run equilibrium.
B)   a recession.
C)   an economic boom.
D)   an economic recovery.

Question 3

To measure core inflation, the BLS excludes ______________ from the basket of goods used to calculate the CPI.

Accepted Answer

A)   food and gasoline
B)   food, clothing, and housing
C)   food and housing
D)   housing and gasoline

Question 4

Price indexes:

Accepted Answer

A)   allow us to convert nominal measures of output into real measures of output.
B)   let us measure how much real stuff we get for our money.
C)   like the CPI or GDP price deflator are used to measure the aggregate price level.
D)   All of these statements are true.

Question 5

If the real rate of return is 3 percent, and the inflation rate is 4 percent, then the nominal interest rate must be:

Accepted Answer

A)   −1 percent.
B)   1 percent.
C)   7 percent.
D)   −7 percent.

Question 6

When an economy's actual output differs from its potential at some point in time, we say that it is experiencing:

Accepted Answer

A)   an output gap.
B)   a recession.
C)   a boom.
D)   an inflationary gap.

Question 7

The Phillips Curve depicts that, in general:

Accepted Answer

A)   high amounts of unemployment in an economy will coincide with low inflation.
B)   low amounts of unemployment in an economy will coincide with low inflation.
C)   high amounts of unemployment in an economy will coincide with high inflation.
D)   high amounts of output in an economy will coincide with low inflation.

Question 8

Core inflation is all of the following but:

Accepted Answer

A)   a measure of inflation that excludes goods with historically volatile price changes.
B)   the BLS's official measure of changes in prices.
C)   Both an overall rise in prices in the economy.
D)   a measure of inflation that excludes gasoline and food price changes.

Question 9

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

Accepted Answer

A)   2.
B)   500.
C)   50.
D)   5.

Question 10

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)   the actual average interest rate in the economy.

Question 11

If the economy is represented in the graph shown and is currently at point E1, then the economy must be in:

Accepted Answer

A)   long-run equilibrium.
B)   a recession.
C)   an economic boom.
D)   an economic recovery.

Question 12

Deflation is an overall:

Accepted Answer

A)   rise in prices in the economy.
B)   decline in prices in the economy.
C)   rise in prices in the economy, excluding those with historically volatile price changes.
D)   decline in prices in the economy, excluding those with historically volatile price changes.

Question 13

Conducting expansionary monetary policy when the economy is at its long-run equilibrium causes the Phillips Curve to:

Accepted Answer

A)   shift straight up.
B)   shift straight down.
C)   become less steep.
D)   become more steep.

Question 14

The neutrality of money is the idea that:

Accepted Answer

A)   aggregate price levels do not affect real outcomes in the economy.
B)   hard money has a neutral effect in the economy.
C)   in real terms, it makes no difference who is spending each dollar.
D)   virtual money has a neutral effect in the economy.

Question 15

According to the quantity theory of money, changes in the price level are primarily the result of changes in the:

Accepted Answer

A)   quantity of money.
B)   unemployment rate.
C)   rate of spending.
D)   total output.

Question 16

Most economists agree that the best rate of inflation for a stable economy would be around:

Accepted Answer

A)   zero.
B)   two to three percent.
C)   five to six percent.
D)   seven percent.

Question 17

According to the quantity theory of money, a decrease in prices would be due to:

Accepted Answer

A)   a decrease in the money supply.
B)   an increase in the money supply.
C)   a decrease in the production of output.
D)   an increase in the production of output.

Question 18

If the purchasing power of your savings is increasing over time, we know that:

Accepted Answer

A)   the real rate of interest is positive.
B)   if the nominal interest rate is zero, inflation must be negative.
C)   the inflation rate must be less than the nominal rate of interest.
D)   All of these statements are true.

Question 19

1 B)  E2 C)  E3 D)  E4 " class="answers-bank-image d-inline" rel="preload" > If the economy is experiencing an economic boom, which point in the graph shown would likely represent this?

Accepted Answer

A)   E1
B)   E2
C)   E3
D)   E4

Question 20

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 necessity goods increases suddenly.
D)   business cycle becomes sporadic and unpredictable.

Exam 16: Inflation

________ inflation is more stable than __________ inflation, because it excludes food and gasoline prices.

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To measure core inflation, the BLS excludes ______________ from the basket of goods used to calculate the CPI.

Correct AnswerverifiedShow Answer

If the real rate of return is 3 percent, and the inflation rate is 4 percent, then the nominal interest rate must be:

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If the economy is experiencing an economic boom, which point in the graph shown would likely represent this?

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Core inflation is all of the following but:

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The Phillips Curve depicts that, in general:

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Most economists agree that the best rate of inflation for a stable economy would be around:

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If the economy is represented in the graph shown and is currently at point E3, then the economy must be in:

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Demand pull inflation occurs when the:

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The real interest rate is:

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If the purchasing power of your savings is increasing over time, we know that:

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Deflation is an overall:

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Price indexes:

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

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The neutrality of money is the idea that:

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According to the quantity theory of money, changes in the price level are primarily the result of changes in the:

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When an economy's actual output differs from its potential at some point in time, we say that it is experiencing:

Correct AnswerverifiedShow Answer

If the economy is represented in the graph shown and is currently at point E1, then the economy must be in:

Correct AnswerverifiedShow Answer

Conducting expansionary monetary policy when the economy is at its long-run equilibrium causes the Phillips Curve to:

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According to the quantity theory of money, a decrease in prices would be due to:

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inflation is more stable than __ inflation, because it excludes food and gasoline prices.

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If the economy is represented in the graph shown and is currently at point E₃, then the economy must be in:

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If the economy is represented in the graph shown and is currently at point E₁, then the economy must be in:

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