Question 1

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

Accepted Answer

A)   −1 percent.
B)   1 percent.
C)   7 percent.
D)   −7 percent.E) A) and C)
F) B) and D)

Question 2

Because it excludes food and energy prices, _______ inflation is more stable than _______ inflation.

Accepted Answer

A)   core; headline
B)   headline; core
C)   core; nominal
D)   nominal; coreE) C) and D)
F) B) and D)

Question 3

Which of these is not considered when calculating core inflation?

Accepted Answer

A)   Food
B)   Housing
C)   Clothing
D)   EntertainmentE) B) and C)
F) A) and B)

Question 4

The Phillips curve will shift because of:

Accepted Answer

A)   expected inflation.
B)   disinflation.
C)   hyperinflation.
D)   core inflation.E) A) and C)
F) A) and B)

Question 5

The NAIRU:

Accepted Answer

A)   is difficult to measure.
B)   can change over time.
C)   occurs at an economy's level of potential output.
D)   All of these are true.E) All of the above
F) C) and D)

Question 6

To meet the dual mandate, the Fed must:

Accepted Answer

A)   maintain price stability and keep unemployment near the NAIRU.
B)   maintain full employment and a 4 percent real GDP growth rate.
C)   maintain price stability and keep interest rates low.
D)   maintain full employment and keep firm profits high.E) A) and D)
F) A) and C)

Question 7

Most economists agree that modest inflation is desirable over zero inflation because:

Accepted Answer

A)   it helps firms to more easily adjust real wages.
B)   it allows a margin of error for those deciding on the money supply.
C)   it allows the Fed to more easily engage in expansionary monetary policy.
D)   All of these statements are true.E) A) and B)
F) A) and C)

Question 8

Price indexes:

Accepted Answer

A)   allow us to convert nominal measures of output into real measures of output.
B)   help us measure the goods and services consumers can purchase with their money.
C)   are used to measure the aggregate price level.
D)   All of these statements are true.E) All of the above
F) None of the above

Question 9

The graph shown displays various price and output levels in an economy. 2, the Fed is most likely to undertake _______ monetary policy because it will shift _______. A)  expansionary; AD to the right B)  contractionary; AD to the left C)  expansionary; AD to the left D)  contractionary; AS to the right" class="answers-bank-image d-inline" rel="preload" > If the economy is currently at point E2, the Fed is most likely to undertake _______ monetary policy because it will shift _______.

Accepted Answer

A)   expansionary; AD to the right
B)   contractionary; AD to the left
C)   expansionary; AD to the left
D)   contractionary; AS to the rightE) C) and D)
F) A) and D)

Question 10

Price indexes allow us to convert _______ measures of output into _______ measures of output.

Accepted Answer

A)   nominal; real
B)   real; nominal
C)   perceived; real
D)   nominal; perceivedE) A) and D)
F) C) and D)

Question 11

Disinflation is a period during which overall inflation rates are:

Accepted Answer

A)   positive and falling.
B)   negative.
C)   positive and increasing.
D)   zero.E) All of the above
F) B) and C)

Question 12

An overall decline in prices is called:

Accepted Answer

A)   inflation.
B)   deflation.
C)   the consumer price index.
D)   the producer price index.E) C) and D)
F) A) and B)

Question 13

Inflation is an overall:

Accepted Answer

A)   rise in prices.
B)   decline in prices.
C)   rise in prices, excluding goods and services with historically volatile price changes.
D)   decline in prices, excluding good and services with historically volatile price changes.E) All of the above
F) A) and D)

Question 14

Shoe-leather costs refer to:

Accepted Answer

A)   the money, time, and opportunity used to change prices to keep pace with inflation.
B)   the time, money, and effort one has to spend managing cash in the face of inflation.
C)   the higher taxes one must pay when earning a greater dollar amount, even though real purchasing power hasn't changed.
D)   the labor costs associated with inflation.E) B) and C)
F) A) and D)

Question 15

When the economy is experiencing a negative output gap:

Accepted Answer

A)   people and capital are unemployed.
B)   the economy may be in a recession.
C)   there is little inflationary pressure due to low demand.
D)   All of these statements are true.E) None of the above
F) A) and B)

Question 16

If we know values for the money supply and the velocity of money, we can calculate:

Accepted Answer

A)   the price value of real output.
B)   real output.
C)   the rate of inflation.
D)   the nominal value of firms' outputs.E) B) and D)
F) A) and B)

Question 17

During the 1980s, Federal Reserve Chairman Paul Volcker tamed high inflation rates by increasing the interest rate. This resulted in:

Accepted Answer

A)   an increase in the money supply.
B)   disinflation.
C)   deflation.
D)   contractionary fiscal policyE) C) and D)
F) None of the above

Question 18

Suppose the annual nominal interest rate is 10 percent and the inflation rate is 4 percent. If you deposit $1,000, at the end of the year you'll have earned a real rate of interest of:

Accepted Answer

A)   4 percent.
B)   6 percent.
C)   10 percent.
D)   14 percent.E) B) and C)
F) A) and D)

Question 19

Which country has struggled with a liquidity trap in recent decades?

Accepted Answer

A)   Germany
B)   United States
C)   China
D)   JapanE) B) and C)
F) C) and D)

Question 20

In the long run, an increase in the aggregate price level:

Accepted Answer

A)   doesn't change real output.
B)   decreases real output.
C)   increases real output.
D)   may increase or decrease real output.E) A) and B)
F) None of the above

Exam 16: Inflation

To meet the dual mandate, the Fed must:

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An overall decline in prices is called:

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Disinflation is a period during which overall inflation rates are:

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

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Price indexes allow us to convert _______ measures of output into _______ measures of output.

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The Phillips curve will shift because of:

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Price indexes:

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Inflation is an overall:

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In the long run, an increase in the aggregate price level:

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Shoe-leather costs refer to:

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During the 1980s, Federal Reserve Chairman Paul Volcker tamed high inflation rates by increasing the interest rate. This resulted in:

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Which of these is not considered when calculating core inflation?

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Most economists agree that modest inflation is desirable over zero inflation because:

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The graph shown displays various price and output levels in an economy. If the economy is currently at point E2, the Fed is most likely to undertake _______ monetary policy because it will shift _______.

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Because it excludes food and energy prices, _______ inflation is more stable than _______ inflation.

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If we know values for the money supply and the velocity of money, we can calculate:

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Which country has struggled with a liquidity trap in recent decades?

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Suppose the annual nominal interest rate is 10 percent and the inflation rate is 4 percent. If you deposit $1,000, at the end of the year you'll have earned a real rate of interest of:

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When the economy is experiencing a negative output gap:

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The NAIRU:

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Price indexes allow us to convert _ measures of output into _ measures of output.

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The graph shown displays various price and output levels in an economy. If the economy is currently at point E₂, the Fed is most likely to undertake _ monetary policy because it will shift _.

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Because it excludes food and energy prices, _ inflation is more stable than _ inflation.

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