econ chapter 31

Which price index measures the average price received by producers? A) the consumer price index B) the GDP deflator C) the producer price index D) the wholesale price index

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Why does inflation increase your tax burden, at least in the short run? I. Inflation bloats stock prices, which leads to a capital gains tax burden. II. The market value of financial assets rises with inflation and the U.S. tax system assesses taxes on such gains, even if the "real" value of such assets remains the same. III. Consumers pay higher sales taxes when the prices of goods and services increase due to inflation A) I and II only B) II and III only C) I and III only D) I, II, and III

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Inflation generally causes the taxes paid by individuals and business firms to A) remain relatively constant. B) increase. C) decrease. D) become less of a burden.

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Suppose the average level of prices increased from 100 to 110 between 2007 and 2008, and from 110 to 115 between 2008 and 2009. Between 2008 and 2009, there was A) deflation. B) hyperinflation. C) disinflation. D) inflation in the real price of everything.

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Suppose the money supply equals $100 million, the price level equals 40, and real GDP equals $50 million. Given this information, the velocity of money equals A) 20. B) 80. C) 100. D) 125.

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Table: Anticipating Inflation) Using the inflation data in the table above, assume that all loan contracts had fixed nominal interest rates of 10 percent and matured after one year. In which year given below did borrowers gain relative to lenders? A) 2000 B) 2001 C) 2002 D) 2003

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Approximately how many prices of goods and services are measured by the CPI? A) 800,000 B) 80,000 C) 800 D) 80

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Debt monetization means that a government pays off its debt by A) lowering inflation. B) raising tax revenues. C) borrowing from foreigners. D) increasing the money supply.

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

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If a price index increased from 400 to 440 over the course of a year, then the inflation rate is A) 4 percent. B) 9 percent. C) 10 percent. D) 40 percent.

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If expected inflation is higher than actual inflation, then A) wealth will be redistributed from lenders to borrowers. B) wealth will be redistributed from borrowers to lenders. C) both borrowers and lenders will gain wealth. D) both borrowers and lenders will lose wealth.

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If the price level in the year 2000 is 100, and the price level in the year 2001 is 110, what is the inflation rate in 2001? A) 100 percent B) 110 percent C) 10 percent D) 9 percent

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(Table: Anticipating Inflation) Using the inflation data in the table above, assume that all loan contracts had fixed nominal interest rates of 10 percent and matured after one year. In which year given below did lenders gain relative to borrowers? A) 2000 B) 2002 C) 2003 D) 2004

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(Table: CPI) According to the table, in which of the following years did this country experience deflation? A) 1999 B) 2000 C) 2001 D) 2002

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(Table: CPI) According to the table, in which of the following years did this country experience disinflation? A) 1999 B) 2000 C) 2001 D) 2002

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(Table: Consumer Price Index) Refer to the CPI values in the table for the years 2005 to 2010. In which years did the country experience deflation? I. 2007 II. 2008 III. 2009 IV. 2010 A) I, II, and III only B) I only C) I and III only D) III only

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

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According to the Fisher effect, a 5 percent decrease in the expected inflation rate results in A) a 5 percent decrease in the nominal interest rate. B) a more than 5 percent increase in the nominal interest rate. C) a 5 percent decrease in the real interest rate. D) a more than 5 percent increase in the real interest rate.

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According to the Fisher equation, if the expected inflation rate is less than the actual inflation rate, then the actual interest rate will be A) lower than the equilibrium interest rate. B) higher 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.

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According to the Fisher equation, the nominal interest rate equals the expected inflation rate A) less the equilibrium real interest rate. B) plus the equilibrium real interest rate. C) multiplied by the equilibrium real interest rate. D) divided by the equilibrium real interest rate.

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According to the quantity theory of money, a nation that increases its money supply by 30 percent should expect its price level to increase by approximately A) 15 percent. B) 30 percent. C) 45 percent. D) 60 percent

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According to the quantity theory of money, an increase in the money supply causes an increase in A) production. B) the velocity of money. C) real GDP. D) prices.

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

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

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An assumption of the quantity theory of money is that real GDP A) remains relatively constant. B) rises with increases in the money supply. C) rises with increases in the velocity of money. D) rises with increases in the price level.

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An assumption of the quantity theory of money is that the velocity of money A) remains relatively constant. B) rises with increases in the money supply. C) rises with increases in real GDP. D) rises with increases in the price level.

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For a given nominal interest rate, an increase in the inflation rate will cause real interest rates to A) remain relatively constant. B) increase. C) decrease. D) become unpredictable.

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How might changes in the money supply be non-neutral in the short run? A) As the amount of money circulating in the economy changes before prices respond, consumers' purchases change accordingly, which leads producers to change production levels. B) When money supply changes in the short run, it will affect nominal, but not real, variables in the short run. C) As money growth increases at a faster rate, it will cause real GDP to grow at an equally faster rate. D) If producers expect inflation to increase, they will increase supply in order to sell before the arrival of inflation.

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If the velocity of money and real GDP are fixed, then the quantity theory of money implies that the price level will A) increase at a lower rate than the growth in the money supply. B) increase at the same rate as the growth in the money supply. C) increase at a higher rate than the growth in the money supply. D) be unrelated to the growth in the money supply.

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If, in an economic panic people decide to hold their money rather than spend it, the velocity of money will A) remain relatively constant. B) increase. C) decrease. D) become unpredictable.

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In a small economy, the quantity of money circulating in the economy is $2.5 million. Real GDP for the current year is $5 million, and the price level is 2. What is the velocity of money? A) 4 B) 2 C) 2.5 D) 5

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In a small economy, the rate of money growth for the current year is 2 percent. Velocity of money circulation is stable. Inflation is expected to be about 1.5 percent over the current year. What is the short run economic growth rate? A) 3.5 percent B) 1.5 percent C) 0.5 percent D) 2 percent

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In the long run, money A) always increases GDP. B) will not affect prices. C) will lift the standard of living for everyone in a nation. D) is neutral.

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In the quantity theory of money, the growth of ________ is the cause of inflation. A) the money supply B) velocity C) real GDP D) the CPI

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Table: Consumer Price Index) Refer to the CPI values in the table for the years 2005 to 2010. What was the approximate inflation rate over the period 2009 to 2010? A) 3.60 percent B) 18.10 percent C) 21.81 percent D) 1.68 percent

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The Fisher effect indicates that an increase in the expected inflation rate will cause the nominal rate of interest to A) remain relatively constant. B) increase by the same amount. C) decrease by the same amount. D) become unpredictable.

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The Fisher effect indicates that an increase in the expected inflation rate will cause the real rate of interest to A) remain relatively constant. B) increase by the same amount C) decrease by the same amount. D) become unpredictable.

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The actual real rate of return for lenders is equal to A) the nominal rate of return plus the inflation rate. B) the nominal rate of return minus the inflation rate. C) the nominal rate of return times the inflation rate. D) the nominal rate of return divided by the inflation rate times 100.

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

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The argument that "money is neutral in the long run" means that an increase in the money supply can A) increase real GDP only temporarily. B) decrease real GDP only temporarily. C) increase real GDP permanently. D) decrease real GDP permanently.

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The books "inflation parable" refers to the fact that an unexpected change in the money supply affects A) real GDP only in the long run. B) real GDP only in the short run. C) real GDP in both the short run and the long run. D) only inflation in the short run.

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The common price indexes for measuring inflation include the I. consumer price index. II. GDP deflator. III. commodity price index. A) I and II only B) II and III only C) I and III only D) I, II, and III

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The costs of inflation include I. wasted resources in association with price confusion. II. higher tax burdens. III. wealth redistribution from private citizens to the government. A) I and II only B) II and III only C) I and III only D) I, II, and III

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The quantity theory of money describes the relationship between A) prices, employment, money, and production. B) money velocity, money, real output, and prices. C) GDP, money, consumption, and savings. D) None of the answers is correct

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The quantity theory of money is a theory of A) money growth in the United States B) inflation. C) economic growth D) the growth of tax burdens.

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The situation in which the government pays off its debts by printing money is called A) a money illusion. B) monetizing the debt. C) disinflation. D) the quantity theory of money.

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What do we call an increase in the average level of prices in an economy? A) recession B) stagflation C) deflation D) inflation

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When changes in nominal prices are confused with changes in real prices, people experience A) consumer bias. B) inflationary delusion. C) cyclical price confusion. D) money illusion.

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

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When the money supply and the demand for goods increase at the same time: A) producers understand how to react, but consumers are confused. B) consumers act rationally, but producers cannot read the market signals. C) the government is able to clarify how the markets will be affected. D) both consumers and producers can often become confused

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When the price of a good in Russia increases from 20 rubles to 20 million rubles in a single year, the nation is experiencing A) deflation. B) falling GDP per capita. C) hyperinflation. D) high disinflation.

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Which index measures price increases that typical American consumers face when shopping? A) CPI B) PPI C) GDP deflator D) GDP inflator

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Which of the following is an example of money illusion assuming that inflation is 5 percent? A) You receive a 5 percent raise on your part-time job and start spending extra money on entertainment every weekend B) You receive a 5 percent raise on your part-time job, but do not increase or decrease your spending. C) You do not receive a raise on your part-time job, but cut out some expenses as you notice some prices rising. D) None of the answers is correct.

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Which of the following statements highlights the difference between the CPI (consumer price index) and the GDP deflator? A) The CPI measures the average prices of inputs in the production process, whereas the GDP deflator measures the average prices of goods purchased by consumers. B) The CPI measures the average prices of retail goods, whereas the GDP deflator measures the average prices of wholesale goods. C) The CPI measures the average prices of typical goods consumed by consumers, whereas the GDP deflator measures the average prices of all goods consumed by all agents in the economy. D) The CPI measures the average prices of all final goods consumed by consumers, whereas the GDP deflator measures the average prices of all inputs used in the economy.

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Which price index comprises the prices of all final goods and services produced within the economy? A) the consumer price index B) the GDP inflator C) the GDP deflator D) the producer price index

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he velocity of money is A) how fast the price level is rising B) how fast the inflation rate is rising. C) the average number of times a dollar is spent on consumer goods and services. D) the average number of times a dollar is spent on final goods and services.

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