Chapter 14

Which of the following increase during hyperinflation? a. velocity b. the real value of taxes collected by government c. real GDP d. all of the above

a.

A situation in which monetary policy loses its effectiveness, interest rates are low, and people accumulate large amounts of cash is called a (an) a. productivity trap b. liquidity trap c. phillips trap d. asset-bubble trap

b.

If expansionary monetary policy is used to hold real output above its natural level for several years in a row, the result is likely to be ____. a. inflation at a faster rate each year b. a steady rate of inflation from year to year c. inflation that slows gradually from year to year d. deflation

a.

When the economy is in a liquidity trap, which of the following is likely to increase fastest? a. the monetary base b. the money stock (M2) c. nominal GDP d. all of the above must increase at the same rate during a liquidity trap

a.

Which of the following is most likely to increase as a country moves from price stability into a period of demand-side deflation? a. the real interest rate b. the nominal interest rate. c. the rate of the growth of real output d. velocity

a.

ERB stabilization policy means a policy to combat hyperinflation that is based on which of the following? a. an exogenous real bound for the nominal interest rate b. introducing a fixed exchange rate of the nation's currency relative to a stable foreign currency c. exchange of real bills for liquid asses issued by the central bank d. fiscal consolidation to eliminate the real budget deficit

b.

Which of the following is an example of a supply show that would shift the aggregate supply curve upward? a. an open market purchase by the fed b. an increase in world commodity prices ( for a commodity-importing country) c. an appreciation of the country's currency relative to foreign currencies d. a decrease in tax rates

b.

A country that experiences a period of falling prices accompanied by falling real output and rising unemployment is suffering from ____. a. hyperinflation b. supply-side deflation c. demand-side deflation d. asset bubble deflation

c.

An episode during which real output drops below its natural level while unemployment and the price level both rise is best described as ____. a. accommodating policy b. deflation c. an inflationary recession d. hyperdeflation

c.

Which of the following best characterizes the official policy of the Federal Reserve regarding asset bubbles, as implemented during the period before the recession that started at the end of 2007? a. actively burst bubbles as soon as they are spotted b. encourage the formation of bubbles in the hope they will never burst. c. do not try to burst bubbles because they are too hard to identity d. gently inflate bubbles to ease them to a soft landing

c.

Which of the following is likely to be greater if accommodating policy is used after a supply shot than if there is no accommodating policy? a. the price level b. the level of real output c. both a and b d. none of the above

c.

A curve showing an inverse relationship between inflation and unemployment is called a (an) ____. a. inflation-momentum curve b. keynesian inflation trap c. hyperliquidity curve d. phillips curve

d.

If the nominal rate of interest is 3 percent and the rate of inflation is -5 pecent (5 percent rate of deflation), the real interest rate is ____. a. -8 percent b. -2 percent c. 2 percent d. 8 percent

d.

Starting from a point of long-run equilibrium, the initial effects of demand-side inflation would include an increase in ____. a. the price level b. real output c. unemployment d. both a and b, but not c

d.

Which of the following describes a special type of expansionary monetary policy that can be used even when nominal interest rates are near the zero interest rate bound? a. the liquidity trap b. ERB stabilization c. bubble-bursting d. quantitative easing

d.