Question 1

If there has been an upward movement along the fixed short-run Phillips curve, the _____ curve has shifted to the _____.

Accepted Answer

A)  SRAS; left
B)  SRAS; right
C)  AD; left
D)  AD; right

Question 2

Use the following to answer questions :
Figure: AD-AS 1 and moves to E2, where AD2 intersects SRAS1. Finally the economy moves to E3. The classical model of price level assumes that the economy moves from _____; thus, inflation _____ and real GDP _____. A) E1 to E3, ignoring E2; increases; remains the same B) E2 to E3, ignoring E1; remains the same; increases C) E2 to E3; decreases; remains the same D) E1 to E2, ignoring E3; remains the same; remains the same" class="answers-bank-image d-inline" rel="preload" >
-(Figure: AD-AS)  Look at the figure AD-AS. Suppose the economy starts at E1 and moves to E2, where AD2 intersects SRAS1. Finally the economy moves to E3. The classical model of price level assumes that the economy moves from _____; thus, inflation _____ and real GDP _____.

Accepted Answer

A)  E1 to E3, ignoring E2; increases; remains the same
B)  E2 to E3, ignoring E1; remains the same; increases
C)  E2 to E3; decreases; remains the same
D)  E1 to E2, ignoring E3; remains the same; remains the same

Question 3

The classical model of the price level is most likely to be a good approximation of reality during periods of:

Accepted Answer

A)  recession.
B)  high unemployment.
C)  low inflation.
D)  high inflation.

Question 4

To balance its budget, the government of Zimbabwe borrowed large amounts of money in world markets.

Accepted Answer

A) True 
 B)False  False

Question 5

An inflation rate of 5% will increase the purchasing power of $1 to $1.10.

Accepted Answer

A) True 
 B)False

Question 6

Expectations of a higher inflation rate shift the short-run aggregate supply curve to the _____, changing the trade-off between inflation and unemployment. As a result, the short-run Phillips curve shifts _____.

Accepted Answer

A)  left; down
B)  right; up
C)  left; up
D)  right; down

Question 7

As people get used to inflation:

Accepted Answer

A)  the short-run aggregate demand curve adjusts more rapidly.
B)  wages adjust faster, and the short-run aggregate supply shifts quickly to the right.
C)  wages adjust faster, and the short-run aggregate supply shifts quickly to the left.
D)  the long-run aggregate demand adjusts more slowly. C

Question 8

Use the following to answer question :
Figure: AD-AS Model E with a price level of P1. Which of the following would represent the new long-run equilibrium position if the aggregate demand curve shifted to the right from AD1 to AD2 as a result of an increase in the money supply? A) YE and P2 B) YE and P1 C) Y1 and P2 D) YE and P3" class="answers-bank-image d-inline" rel="preload" >
-(Figure: AD-AS Model)  Look at the figure AD-AS Model. Suppose the economy is at YE with a price level of P1. Which of the following would represent the new long-run equilibrium position if the aggregate demand curve shifted to the right from AD1 to AD2 as a result of an increase in the money supply?

Accepted Answer

A)  YE and P2
B)  YE and P1
C)  Y1 and P2
D)  YE and P3

Question 9

During an inflationary gap:

Accepted Answer

A)  the unemployment rate is less than the natural rate of unemployment.
B)  actual output is less than potential output.
C)  the unemployment rate is equal to the natural rate of unemployment.
D)  wages and prices must fall to restore the economy to its potential output.

Question 10

It is impossible for the U.S. government to raise revenue by printing more money because the Federal Reserve, not the Treasury, issues most of the U.S. money supply.

Accepted Answer

A) True 
 B)False  False

Question 11

Reduction of inflation that is embedded in expectations is called:

Accepted Answer

A)  disinflation.
B)  deflation.
C)  hyperinflation.
D)  the natural rate of inflation.

Question 12

The measure that the Fed regards as the best guide to underlying inflation is the:

Accepted Answer

A)  consumer price index.
B)  wholesale price index.
C)  core inflation rate.
D)  federal funds rate.

Question 13

When a central bank prints money to pay government debts, causing rising prices that erode the purchasing power of money held by the public, it is called a(n)  _____ tax.

Accepted Answer

A)  payroll
B)  inflation
C)  currency
D)  budget

Question 14

Inability to use monetary policy because the nominal rate of interest cannot fall below zero is called:

Accepted Answer

A)  liquidity preference.
B)  money neutrality.
C)  the liquidity trap.
D)  money illusion.

Question 15

The inflation tax refers to:

Accepted Answer

A)  moving into higher tax brackets.
B)  the reduction in the real value of money when inflation falls.
C)  the reduction in the real value of money when inflation rises.
D)  the tax imposed on inflation by the government.

Question 16

An inflation tax is:

Accepted Answer

A)  the reduction in purchasing power due to inflation.
B)  a tax on businesses for raising prices.
C)  a tax on people with inflated incomes.
D)  an excise tax on new automobile tires.

Question 17

The short-run Phillips curve represents the relationship between the unemployment rate and the rate of change in:

Accepted Answer

A)  the interest rate.
B)  output.
C)  wages only.
D)  the aggregate price level.

Question 18

The long-run Phillips curve shows the relationship between:

Accepted Answer

A)  potential aggregate output and the natural rate of unemployment at a given rate of expected inflation.
B)  expected inflation and actual inflation after the expectation becomes embedded in people's minds.
C)  the aggregate output and the aggregate price level at a given rate of expected inflation.
D)  unemployment and inflation after expectations of inflation have had time to adjust to experience.

Question 19

If the money held by the public is $3 billion and inflation is 6%, the inflation tax is:

Accepted Answer

A)  $3.18 billion.
B)  $50 billion.
C)  $180 million.
D)  $1.8 billion.

Question 20

The difference between real GDP and potential GDP is known as the:

Accepted Answer

A)  price gap.
B)  unemployment gap.
C)  output gap.
D)  budget deficit.

Exam 16: Inflation, Disinflation, and Deflation

If there has been an upward movement along the fixed short-run Phillips curve, the _ curve has shifted to the _.

Correct Answer
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Correct Answer
verified

The classical model of the price level is most likely to be a good approximation of reality during periods of:

Correct Answer
verified

To balance its budget, the government of Zimbabwe borrowed large amounts of money in world markets.

Correct Answer
verified
False

An inflation rate of 5% will increase the purchasing power of $1 to $1.10.

Correct Answer
verified

Expectations of a higher inflation rate shift the short-run aggregate supply curve to the _, changing the trade-off between inflation and unemployment. As a result, the short-run Phillips curve shifts _.

Correct Answer
verified

As people get used to inflation:

Correct Answer
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C

Correct Answer
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During an inflationary gap:

Correct Answer
verified

It is impossible for the U.S. government to raise revenue by printing more money because the Federal Reserve, not the Treasury, issues most of the U.S. money supply.

Correct Answer
verified
False

Reduction of inflation that is embedded in expectations is called:

Correct Answer
verified

The measure that the Fed regards as the best guide to underlying inflation is the:

Correct Answer
verified

When a central bank prints money to pay government debts, causing rising prices that erode the purchasing power of money held by the public, it is called a(n) _____ tax.

Correct Answer
verified

Inability to use monetary policy because the nominal rate of interest cannot fall below zero is called:

Correct Answer
verified

The inflation tax refers to:

Correct Answer
verified

An inflation tax is:

Correct Answer
verified

The short-run Phillips curve represents the relationship between the unemployment rate and the rate of change in:

Correct Answer
verified

The long-run Phillips curve shows the relationship between:

Correct Answer
verified

If the money held by the public is $3 billion and inflation is 6%, the inflation tax is:

Correct Answer
verified

The difference between real GDP and potential GDP is known as the:

Correct Answer
verified

Exam 16: Inflation, Disinflation, and Deflation

If there has been an upward movement along the fixed short-run Phillips curve, the _____ curve has shifted to the _____.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The classical model of the price level is most likely to be a good approximation of reality during periods of:

Correct AnswerverifiedShow Answer

To balance its budget, the government of Zimbabwe borrowed large amounts of money in world markets.

Correct AnswerverifiedFalse

An inflation rate of 5% will increase the purchasing power of $1 to $1.10.

Correct AnswerverifiedShow Answer

Expectations of a higher inflation rate shift the short-run aggregate supply curve to the _____, changing the trade-off between inflation and unemployment. As a result, the short-run Phillips curve shifts _____.

Correct AnswerverifiedShow Answer

As people get used to inflation:

Correct AnswerverifiedC

Correct AnswerverifiedShow Answer

During an inflationary gap:

Correct AnswerverifiedShow Answer

It is impossible for the U.S. government to raise revenue by printing more money because the Federal Reserve, not the Treasury, issues most of the U.S. money supply.

Correct AnswerverifiedFalse

Reduction of inflation that is embedded in expectations is called:

Correct AnswerverifiedShow Answer

The measure that the Fed regards as the best guide to underlying inflation is the:

Correct AnswerverifiedShow Answer

When a central bank prints money to pay government debts, causing rising prices that erode the purchasing power of money held by the public, it is called a(n) _____ tax.

Correct AnswerverifiedShow Answer

Inability to use monetary policy because the nominal rate of interest cannot fall below zero is called:

Correct AnswerverifiedShow Answer

The inflation tax refers to:

Correct AnswerverifiedShow Answer

An inflation tax is:

Correct AnswerverifiedShow Answer

The short-run Phillips curve represents the relationship between the unemployment rate and the rate of change in:

Correct AnswerverifiedShow Answer

The long-run Phillips curve shows the relationship between:

Correct AnswerverifiedShow Answer

If the money held by the public is $3 billion and inflation is 6%, the inflation tax is:

Correct AnswerverifiedShow Answer

The difference between real GDP and potential GDP is known as the:

Correct AnswerverifiedShow Answer

If there has been an upward movement along the fixed short-run Phillips curve, the _ curve has shifted to the _.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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False

Correct Answer
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Expectations of a higher inflation rate shift the short-run aggregate supply curve to the _, changing the trade-off between inflation and unemployment. As a result, the short-run Phillips curve shifts _.

Correct Answer
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Correct Answer
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C

Correct Answer
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Correct Answer
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Correct Answer
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False

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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