EC 202: Inflation and the Quantity Theory of Money (Quiz)

Hyperinflation causes financial intermediation to: Select one: A. favor first-time borrowers. B. become more efficient. C. favor long-term lending. D. break down.

D. break down

Because of the money illusion, inflation usually confuses: Select one: A. firms. B. workers. C. consumers. D. All of the answers is correct.

d. all of the answers are correct

All else equal, an increase in the velocity of money will cause: Select one: A. higher inflation. B. deflation. C. hyperinflation. D. disinflation.

A. higher inflation

When the government monetizes its debt, the results are: Select one: A. higher inflation and losses for holders of government bonds. B. lower inflation and benefits for holders of government bonds. C. lower inflation and losses for holders of government bonds. D. higher inflation and benefits for holders of government bonds.

A. higher inflation and losses for holders of government bonds

High volatility in the inflation rate can result in: Select one: A. improper allocation of resources. B. more investment. C. volatility in government expenditures. D. deflation.

A. improper allocation of resources

If the price of gasoline increased 100% during a period of time when inflation was 100%, then the real price of gasoline would: Select one: A. remain constant. B. increase. C. decrease. D. increase or decrease, depending on whether income had changed or not.

A. remain constant

Inflation tends to benefit: Select one: A. the government. B. taxpayers. C. families with fixed incomes. D. lenders.

A. the government

The argument that "inflation is always and everywhere a monetary phenomenon" is consistent with: Select one: A. the quantity theory of money. B. the theory of money illusion. C. the Fisher effect. D. the theory of price confusion.

A. the quantity theory of money

According to the Fisher equation, if the expected inflation rate is less than the actual inflation rate, then the actual interest rate will be: Select one: A. higher than the equilibrium interest rate. B. lower than the equilibrium interest rate. C. the same as the equilibrium interest rate. D. higher or lower than the equilibrium interest rate, depending on the degree of money illusion.

B. lower than the equilibrium interest rate.

According to the CPI, since 1950 the average U.S. inflation rate has been: Select one: A. 6.3%. B. 13.9%. C. 3.9%. D. 11.2%.

C. 3.9%

A major problem with inflation is that after it starts: Select one: A. it can never be stopped with any government policy. B. it always stops quickly because the economy always corrects itself naturally. C. it is difficult to stop without experiencing high unemployment. D. it is easy to stop as long as it is fully expected.

C. it is difficult to stop without experiencing high unemployment

According to the quantity theory of money, the major cause of inflation in the long run is an increase in: Select one: A. the standard of living. B. the growth of real GDP. C. the growth of the money supply. D. the velocity of money.

C. the growth of the money supply

What is the Fisher effect? Select one: A. the tendency of real interest rates to fall with higher expected inflation rates B. the tendency of real interest rates to rise with higher expected inflation rates C. the tendency of nominal interest rates to rise with higher expected inflation rates D. the tendency of nominal interest rates to fall with higher expected inflation rates

C. the tendency of nominal interest rates to rise with higher expected inflation rates

According to the quantity theory of money, an increase in the money supply will cause the price level to: Select one: A. increase by a greater percentage than the money supply. B. increase by a smaller percentage than the money supply. C. remain relatively constant. D. increase by the same percentage as the money supply.

D. increase by the same percentage as the money supply

Hyperinflation refers to the case in which inflation: Select one: A. is extremely low. B. is extremely unpredictable. C. remains relatively constant. D. is extremely high.

D. is extremely high

Which price index is made up of the prices of all final goods produced within the economy? Select one: A. the GDP inflator B. the producer price index C. the consumer price index D. the GDP deflator

D. the GDP deflator

Most cases of national hyperinflation are caused by governments attempting to redistribute wealth to poorer citizens. Select one: True False

False

Government debt monetization generally leads to inflation. Select one: True False

True