Question 1

If the quantity equation holds, then a country operating under a gold standard will experience _______ when its residents discover large gold deposits underground.

Accepted Answer

A)   deflation
B)   disinflation
C)   inflation
D)   All of the above are correct.E) C) and D)
F) B) and C)

Question 2

Which of the following is a factor that economists have identified that can shift the natural rate of unemployment?

Accepted Answer

A)   institutional changes
B)   changes in demographics
C)   changes in labor productivity
D)   All of the above are correct.E) A) and B)
F) None of the above

Question 3

Is the quantity equation a short- run concept or a long- run concept? Explain.

Accepted Answer

Long- run. The quantity equation is a lo...

Question 4

Recall Application 1, "Shifts in the Natural Rate of Unemployment" to answer the following questions:
-According to the application, William Dickens estimated that the natural rate of unemployment in 1970 was:

Accepted Answer

A)   6 percent.
B)   4 percent.
C)   7 percent.
D)   5 percent.E) B) and C)
F) None of the above

Question 5

According to the growth version of the quantity equation, a 4% increase in the money supply (holding velocity constant)  causes a 2% increase in prices only if:

Accepted Answer

A)   nominal GDP increases by 2 percent.
B)   real GDP increases by 2 percent.
C)   real GDP decreases by 2 percent.
D)   nominal GDP decreases by 2 percent.E) C) and D)
F) B) and D)

Question 6

If the expectations Phillips curve holds true, then the unemployment rate varies with the:

Accepted Answer

A)   unanticipated inflation rate.
B)   long- run growth rate of real GDP.
C)   anticipated inflation rate.
D)   money supply.E) C) and D)
F) A) and B)

Question 7

Suppose that the government collects $500 in taxes and borrows $1000 from the public. If the government prints $200 in new money to finance its budget deficit, how much is the government spending?

Accepted Answer

A)   $1200
B)   $1500
C)   $700
D)   $1700E) C) and D)
F) A) and D)

Question 8

Recall Application 3, "Hyperinflation in Zimbabwe," to answer the following questions:
-An 8 million percent annual increase in the price level implies that if the price of a basket of goods in June 2007 was $100, then in June 2008, the price of the same basket of goods would be:

Accepted Answer

A)   $800 million.
B)   $100.
C)   $80,000.
D)   $8 million.E) A) and D)
F) None of the above

Question 9

People are said to have rational expectations if they:

Accepted Answer

A)   assume that this year's inflation rate will be equal to the average inflation rate over the past 10 years.
B)   use all available information in forming their expectations.
C)   merely guess at the inflation rate.
D)   assume that this year's inflation rate will be the same as last year's inflation rate.E) A) and D)
F) A) and B)

Question 10

When people form expectations about future inflation based on last period's inflation rate, it is said that expectations are formed:

Accepted Answer

A)   analytically.
B)   using the rule of Law.
C)   using a rule of thumb.
D)   rationally.E) All of the above
F) None of the above

Question 11

Most economists believe that _______ is a purely _______ phenomenon.

Accepted Answer

A)   deflation; fiscal
B)   unemployment; monetary
C)   hyperinflation; monetary
D)   inflation; fiscalE) A) and B)
F) A) and C)

Question 12

When Bob incorrectly believed that his real wage went up when his nominal wages increased because he failed to factor in the effects of inflation, then economists say that he is a victim of:

Accepted Answer

A)   the discouraged worker effect.
B)   inflation injustice.
C)   unemployment.
D)   money illusion.E) C) and D)
F) A) and B)

Question 13

If individuals form rational expectations, an announced policy of reducing the rate of growth in the money supply that is credible will result in:

Accepted Answer

A)   increased expectations of inflation.
B)   unchanged expectations of inflation.
C)   lower expectations of inflation.
D)   possibly any of the above depending on the current inflation rate.E) A) and C)
F) A) and D)

Question 14

Jim's nominal wage increased by 1%, and the prices of goods that Jim buys increased by 4%. Jim's real wage has:

Accepted Answer

A)   remained constant.
B)   increased.
C)   decreased.
D)   changed by 5%, but the direction of the change is ambiguous.E) None of the above
F) A) and C)

Question 15

Recall Application 3, "Hyperinflation in Zimbabwe," to answer the following questions:
-According to the application, which of the following contributed to the hyperinflation in Zimbabwe:

Accepted Answer

A)   the bribing of soldiers and supporters using newly minted currency.
B)   Mugabe's policies to intervene militarily in African conflicts.
C)   decline in tax revenues and export revenues.
D)   All of the above contributed to the hyperinflation.E) B) and D)
F) None of the above

Question 16

Explain how expectations can be self- fulfilling in contributing to inflation.

Accepted Answer

If inflation is expected to be high in t...

Question 17

The United States relies heavily on seignorage to finance its government expenditures.

Accepted Answer

A) True 
 B)False

Question 18

Explain what is meant by the velocity of money.

Accepted Answer

The velocity of money represen...

Question 19

Recall Application 1, "Shifts in the Natural Rate of Unemployment" to answer the following questions:
-According to the application, William Dickens estimated that the natural rate of unemployment since the 1990s has been:

Accepted Answer

A)   4 percent.
B)   6 percent.
C)   7 percent.
D)   5 percent.E) A) and B)
F) A) and C)

Question 20

If a country is currently engaged in a war with another country, it will experience hyperinflation.

Accepted Answer

A) True 
 B)False

Exam 16: The Dynamics of Inflation and Unemployment

The United States relies heavily on seignorage to finance its government expenditures.

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If the expectations Phillips curve holds true, then the unemployment rate varies with the:

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Jim's nominal wage increased by 1%, and the prices of goods that Jim buys increased by 4%. Jim's real wage has:

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Which of the following is a factor that economists have identified that can shift the natural rate of unemployment?

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If a country is currently engaged in a war with another country, it will experience hyperinflation.

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Recall Application 3, "Hyperinflation in Zimbabwe," to answer the following questions: -According to the application, which of the following contributed to the hyperinflation in Zimbabwe:

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Suppose that the government collects $500 in taxes and borrows $1000 from the public. If the government prints $200 in new money to finance its budget deficit, how much is the government spending?

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If individuals form rational expectations, an announced policy of reducing the rate of growth in the money supply that is credible will result in:

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Most economists believe that _______ is a purely _______ phenomenon.

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Explain what is meant by the velocity of money.

Correct AnswerverifiedThe velocity of money represen...View AnswerShow Answer

When people form expectations about future inflation based on last period's inflation rate, it is said that expectations are formed:

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People are said to have rational expectations if they:

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Is the quantity equation a short- run concept or a long- run concept? Explain.

Correct AnswerverifiedLong- run. The quantity equation is a lo...View AnswerShow Answer

If the quantity equation holds, then a country operating under a gold standard will experience _______ when its residents discover large gold deposits underground.

Correct AnswerverifiedShow Answer

According to the growth version of the quantity equation, a 4% increase in the money supply (holding velocity constant) causes a 2% increase in prices only if:

Correct AnswerverifiedShow Answer

When Bob incorrectly believed that his real wage went up when his nominal wages increased because he failed to factor in the effects of inflation, then economists say that he is a victim of:

Correct AnswerverifiedShow Answer

Explain how expectations can be self- fulfilling in contributing to inflation.

Correct AnswerverifiedIf inflation is expected to be high in t...View AnswerShow Answer

Recall Application 3, "Hyperinflation in Zimbabwe," to answer the following questions: -An 8 million percent annual increase in the price level implies that if the price of a basket of goods in June 2007 was $100, then in June 2008, the price of the same basket of goods would be:

Correct AnswerverifiedShow Answer

Recall Application 1, "Shifts in the Natural Rate of Unemployment" to answer the following questions: -According to the application, William Dickens estimated that the natural rate of unemployment in 1970 was:

Correct AnswerverifiedShow Answer

Recall Application 1, "Shifts in the Natural Rate of Unemployment" to answer the following questions: -According to the application, William Dickens estimated that the natural rate of unemployment since the 1990s has been:

Correct AnswerverifiedShow Answer

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Most economists believe that _ is a purely _ phenomenon.

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The velocity of money represen...
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Long- run. The quantity equation is a lo...
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If inflation is expected to be high in t...
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Correct Answer
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