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Exam 5: Inflation: Its Causes, Effects, and Social Costs

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Question 41

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According to the quantity theory of money, if money is growing at a 10 percent rate and real output is growing at a 3 percent rate, but velocity is growing at increasingly faster rates over time as a result of financial innovation, the rate of inflation must be:

A) increasing.
B) decreasing.
C) 7 percent.
D) constant.

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Question 42

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In recent U.S. experience, inflation has:

A) been persistent from year to year, whereas in the nineteenth century inflation had little persistence.
B) been persistent from year to year, and this was also true in the nineteenth century.
C) not been persistent from year to year, although it was persistent in the nineteenth century.
D) not been persistent from year to year, and the same was true in the nineteenth century.

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Question 43

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Percentage change in P is approximately equal to the percentage change in:

In practice, in order to stop a hyperinflation, in addition to stopping monetary growth, the government must:

The quantity equation of money can be re-written as the quantity theory of money when we assume velocity of money (V) to be constant. Assume there are three possible developments: a. There is a rise in the number of shopping malls. b. There is a rise in the number of banks operating. c. There is a rise in the number of ATMs. Which of the above can alter the money velocity, and how?

According to the classical theory of money, inflation does not make workers poorer because wages increase:

Assume that the demand for real money balance (M/P) is M/P = 0.6Y - 100i, where Y is national income and i is the nominal interest rate (in percent). The real interest rate r is fixed at 3 percent by the investment and saving functions. The expected inflation rate equals the rate of nominal money growth. a. If $Y$ is $1,000 , M$ is 100 , and the growth rate of nominal money is 1 percent, what must $i$ and $P$ be? b. If $Y$ is $1,000 , M$ is 100 , and the growth rate of nominal money is 2 percent, what must $i$ and $P$ be?

According to the Fisher effect, the nominal interest rate moves one-for-one with changes in the:

The concept of monetary neutrality in the classical model means that an increase in the money supply will increase:

Evidence from the past 40 years in the United States supports the Fisher effect and shows that when the inflation rate is high, the ______ interest rate tends to be ______.

If inflation is 6 percent and a worker receives a 4 percent nominal wage increase, then the worker's real wage:

A rate of inflation that exceeds 50 percent per month is typically referred to as a(n) :

Although "inflation is always and everywhere a monetary phenomenon," explain why: a. the start of a hyperinflation is typically rel ated to the fiscal policy situati on, and b. the end of a hyperinflation is usually related to changes in fiscal policy.

According to the quantity theory of money, ultimate control over the rate of inflation in the United States is exercised by:

An example of a nominal variable is the:

If the real interest rate and real national income are constant, according to the quantity theory and the Fisher effect, a 1 percent increase in money growth will lead to rises in:

The income velocity of money increases and the money demand parameter k ______ when people want to hold ______ money.

The ex ante real interest rate is based on _____ inflation, while the ex post real interest rate is based on _____ inflation.

If the price level depends on both the current money supply and future expected money supplies, in order to stop a hyperinflation, a central bank may try to establish credibility by:

According to the classical dichotomy, when the money supply decreases, _____ will decrease.