ECO 231 EXAM 3
If the money supply is $1 million, the velocity of money is 10, and the price level is 100, what is real GDP?
$100,000
If velocity is constant, the growth rate of the money supply is 2%, and inflation is 3%, then real output growth will be
-1%
By 1932, the real growth rate of the U.S. economy was:
-13%
Suppose a nation's CPI is 150 in Year 1 and 180 in Year 2. What is the rate of inflation?
20%
Refer to the figure #98 in your study guide: (Table: CPI) According to the table, in which of the following years did this country experience disinflation?
2001 only
Refer to figure #91 in your study guide: (Table: Consumer Price Index) Refer to the CPI values in the table for the years 2008?
3.86%
Refer to the figure #18 in your study guide: (Figure: Aggregate Demand) Point B on this aggregate demand curve represents an inflation rate of:
4%
If the price level in 2016 is 140 and it falls to 133 in 2017, what has the economy experienced between 2016 and 2017?
5% deflation
Approximately how many prices of goods and services are measured by the CPI?
80,000
Which of the following scenarios could result in a recession?
Aggregate demand decreases, and wages are sticky.
Which statement best describes one of the profound effects of the 1973 oil crisis on the U.S. economy?
Consumer preference moved away from big cars and toward smaller cars
What happened to the price level between 1929 and 1932?
Deflation reached 10%.
_____ is a decrease in the average level of prices, whereas _____ is a reduction in the inflation rate.
Deflation; disinflation
Which of the following correctly represents unexpected disinflation?
E3.14 > 3.14
The AD-AS model is most useful for explaining what causes:
Fluctuations in GDP growth around its trend rate.
If a baker observes an increase in demand for bread, should the baker increase output or raise prices?
It depends on whether the change in demand is driven by inflation or by a stronger preference for bread.
Which of the following is NOT consistent with points along the long-run aggregate supply curve?
Real output growth is negatively related to inflation.
What effect did reducing U.S. inflation from 13.5% in 1980 to 3% in 1983 have?
The country experienced a recession.
If the actual rate of inflation turns out to be higher than the expected rate of inflation, what happens to the growth rate of output before expectations are updated?
The growth rate is higher than the Solow growth rate.
According to the quantity theory, which of the following could cause the price level to decrease?
The population spends less money.
Which of the following explains why the inflation rate is slow to adjust over time?
There are high menu costs of changing prices.
Refer to figure #28 in your study guide: From Point X in the accompanying graph, an increase in the supply of oil could cause the economy to move to Point:
W
Which of the following is NOT an example of a real shock?
an increase in sales tax revenues due to population growth
Volatile hyperinflation causes financial intermediation to:
break down.
If the growth rate of the money supply decreases from 10% to 5%, which of the following is a prediction of the quantity theory of money?
disinflation
If the inflation rate falls from 4% in 2005 to 2% in 2006, then:
disinflation has occurred.
The long-run aggregate supply curve shows that long-run economic growth:
does not depend on the rate of inflation.
The aggregate demand curve is:
downward sloping
An increase in _____ will shift the SRAS curve.
expected inflation, but not actual inflation
In the equation M+v=P+Yr what does Yr stand for?
growth in real GDP growth
. Politicians and especially the general public worry about recessions because of:
high unemployment
An increase in the rate of spending growth must flow into either higher inflation or:
higher growth
The economy's aggregate demand curve shows all combinations of _____ that are consistent with a specified rate of spending growth.
iinflation and real GDP growth
The Fisher effect indicates that an increase in the expected inflation rate will cause the nominal rate of interest to:
increase by the same amou
In the equation M+v=P+Yr , what does P stand for?
inflation
The quantity theory of money is a theory of:
inflation
What do we call an increase in the average level of prices in an economy?
inflation
As a result of a positive shock to C :
inflation and output growth increase in the short run, but in the long run they return to the rates before the shock.
In the long run, the quantity theory of money says that the growth rate of the money supply will be approximately equal to the:
inflation rate
Which of the following is NOT a positive aggregate demand shock?
lower growth of government spending
The aggregate demand curve indicates that at a given spending growth rate, a higher inflation is related to a:
lower real GDP growth rate.
The GDP deflator:
measures the average price of all final goods and services produced.
Which of the following is an explanation for why prices may be sticky in the short run?
menu costs
Deflation can cause the economy's aggregate demand curve to shift inward because debt contracts are:
not adjusted for inflation.
The Solow growth rate is the economy's:
potential growth rate
Menu costs are the costs associated with changing:
prices
A measure of the average price received by suppliers is the:
producer price index.
What two components of the quantity theory of money are assumed to be stable over time?
real GDP and the velocity of money
According to the quantity theory of money, a change in the money supply affects:
real GDP in the short run but not in the long run.
Using a graph of the AD and long-run aggregate supply curves, the Internet revolution of the 1990s caused:
real growth to increase and inflation to decrease.
The economy's potential or "Solow" growth rate fluctuates over time because of:
real shocks.
If the price of gasoline increased 100% during a period of time when inflation was 100%, then the relative real price of gasoline would:
remain consistent
A negative real shock causes the long-run aggregate supply curve to:
shift inward.
Holding everything else constant, an increase in the growth rate of the money supply will cause the aggregate demand curve to:
shift outward
During the Great Depression, the long-run aggregate supply curve:
shifted inward.
Which of the following is an example of a negative shock to an economy?
terrorist attacks
The velocity of money is:
the average number of times a dollar is spent on final goods and services in a year
The velocity of money is:
the average number of times per year a dollar is spent on final goods and services in a year
In the quantity theory of money, growth of _____ is the cause of inflation.
the money supply
The argument that "inflation is always and everywhere a monetary phenomenon" is consistent with:
the quantity theory of money.
The short-run aggregate supply curve is upward-sloping because:
wages and prices are sticky in the short run.
The increase in oil prices that took place during the mid-2000s was driven mainly by:
increases in supply and decreases in demand.
. If M = 5%, v = -3%, and P = 2%, the Yr must equal:
0%
If velocity is stable, then v equals:
0%.
In India, shocks to the weather:
are becoming less economically important over time.
Deflation is a decrease in the:
average level of prices.
Which measure of the average price level most closely corresponds to a student's daily economic activities?
consumer price index
In the basic model with an AD and LRAS curve only, if spending growth is 10% and the Solow growth rate falls from 5% to 3%, then inflation will:
increase from 5% to 7%.
When an increase in the money supply is unexpected by firms and workers, real GDP: When an increase in the money supply is unexpected by firms and workers, real GDP:
increases in the short run.
Even moderate inflation typically:
increases the amount of taxes that people pay over time.
When an economy experiences volatile and unpredictable hyperinflation:
it causes a breakdown of financial intermediation.
When the velocity of money and real GDP are fixed, increases in the money supply:
must cause increases in the price level.
In recent years, negative oil price shocks have typically been accompanied by:
negative productivity shocks.
In 2011, the major earthquake and tsunami in Japan destroyed much of the capital infrastructure in Japan. Those natural disasters were examples of a:
negative shock to the long-run aggregate supply curve.
An increase in consumer pessimism will lead to increased inflation in:
neither the short run nor the long run.
The Fisher effect is the tendency of:
nominal interest rates to rise with expected inflation rates.
According to the quantity theory of money, if money supply is $1,000 million, the overall price level is 200, and real GDP is 50 million, then the velocity of money is equal to:
10
If the price level in 2018 is 150 and it rises to 165 in 2019, what is the rate of inflation between 2018 and 2019?
10%
If you had to predict the U.S. inflation rate for next year and decided that a good way to make that prediction would be to simply use the average inflation rate over the past 10 years, what would be your prediction for U.S. inflation next year?
2.4%
Refer to the figure #69 in your study guide: (Table: Anticipating Inflation) Using the inflation data in the table above, assume that all loan contracts have fixed nominal interest rates of 10% and mature after 1 year. In which year did lenders receive exactly the amount of real interest they expected?
2000
Refer to the figure #58 in your study guide: (Table: Consumer Price Index) Refer to the CPI values in the table for the years 2005 to 2010. In which year(s) did the country experience deflation?
2009 only
The average rate of inflation in the United States over the past 10 years has been around 2.4%. If this trend continues, prices in the United States will double in about _____ years.
29
Which measure of the average price level most closely corresponds to a student's daily economic activities?
736%
If the CPI was 125 last year and is now 135, then the inflation rate last year was:
8%
A negative real shock leads to:
an increase in the inflation rate but a decrease in the real GDP growth rate.
Deflation is:
a decrease in the average level of prices
In the basic model that includes the AD and LRAS curves only, increased spending growth causes
a higher inflation rate, but no change in the real growth rate.
A significant, widespread decline in real income and employment is called:
a recession
In a diagram with the inflation rate on the vertical axis and the real growth rate on the horizontal axis, the long-run aggregate supply curve is:
a vertical line at the Solow growth rate
Which one of the following is NOT a cost of inflation?
an automatic decrease in real wages throughout the period of inflation.
Which of the following causes a shift of the AD curve to the right?
an increase in consumer confidence
Which of the following would cause the AD curve to shift to the right?
an increase in consumer wealth
The price level at the end of 2011 minus the price level at the end of 2010 is the _____ for the year 2011.
change in the price level
In times of financial panic, we expect the velocity of money to:
decrease.
A 1% increase in real growth, ceteris paribus, _____ inflation by _____.
decreases; 1%
The quantity theory of money:
describes the general relationship between money, velocity, real output, and prices.
A major problem with inflation is that after it starts:
it is difficult to stop without experiencing high unemployment.
If the economy experiences unexpected inflation, then the real interest rate will be _____ than its equilibrium rate, and wealth will be distributed from _____.
less; lenders to borrowers
In the equation Mv = PYr, P represents:
the average price level.
The case of hyperinflation in Zimbabwe in the late 2000s was an example of the effects of:
the government monetizing its debt.
