Question 1

Khiem earns $50,000 per year and pays an annual income tax of 10 percent. Due to an inflation rate of 10 percent, his pay increases to $55,000, which puts him in a higher tax bracket where he must now pay 20 percent. Khiem has experienced:

Accepted Answer

A)   bracket costs.
B)   the deflationary cost of tax distortion.
C)   an increase in his purchasing power.
D)   the inflationary cost of tax distortion.E) A) and C)
F) C) and D)

Question 2

Headline inflation:

Accepted Answer

A)   includes all of the goods the average consumer buys.
B)   is based on the CPI basket of goods.
C)   core inflation plus the prices of food and energy.
D)   All of these statements are true.E) B) and D)
F) None of the above

Question 3

Conducting expansionary monetary policy when the economy is at its long-run equilibrium causes the Phillips curve to:

Accepted Answer

A)   shift straight up.
B)   shift straight down.
C)   become less steep.
D)   become steeper.E) A) and C)
F) C) and D)

Question 4

According to the quantity theory of money, increasing the money supply:

Accepted Answer

A)   leads to inflation.
B)   increases production.
C)   leads to decreased spending.
D)   decreases the velocity of money.E) All of the above
F) A) and B)

Question 5

The graph shown displays various price and output levels in an economy. 2, what could be said about its unemployment? A)  There is higher unemployment than the natural rate. B)  There is lower unemployment than the natural rate. C)  The unemployment rate is near the natural rate. D)  The unemployment rate is zero." class="answers-bank-image d-inline" rel="preload" > If the economy is currently at point E2, what could be said about its unemployment?

Accepted Answer

A)   There is higher unemployment than the natural rate.
B)   There is lower unemployment than the natural rate.
C)   The unemployment rate is near the natural rate.
D)   The unemployment rate is zero.E) B) and C)
F) C) and D)

Question 6

If the Fed doubled the money supply in one day, the amount of goods and services traded would:

Accepted Answer

A)   not change.
B)   increase.
C)   decrease.
D)   fall to zero.E) B) and C)
F) All of the above

Question 7

The velocity of money is:

Accepted Answer

A)   the number of transactions a typical dollar is used in during a given period.
B)   the number of goods a typical dollar can buy in a given period.
C)   how quickly money is created through the financial system.
D)   how quickly consumers spend their wages.E) A) and B)
F) B) and D)

Question 8

The money value of goods or services sold is measured in:

Accepted Answer

A)   nominal values.
B)   real values.
C)   aggregated values.
D)   intermediate values.E) All of the above
F) A) and C)

Question 9

The line that shows the connection between inflation and unemployment in the short run is called the:

Accepted Answer

A)   Phillips curve.
B)   inflation-employment trade-off.
C)   price-work curve.
D)   aggregate supply curve.E) A) and D)
F) C) and D)

Question 10

A period during which overall inflation rates are positive but falling is:

Accepted Answer

A)   disinflation.
B)   deflation.
C)   inflation.
D)   zero price level.E) A) and B)
F) B) and C)

Question 11

The lowest possible unemployment rate that will not cause the inflation rate to increase is called:

Accepted Answer

A)   the nonaccelerating inflation rate of unemployment (NAIRU) .
B)   the natural rate of unemployment.
C)   full employment.
D)   All of these are true.E) C) and D)
F) A) and B)

Question 12

If L.L.Bean decides to increase its prices due to general inflation, it must reprint the millions of catalogs it has already produced and distributed. The costs associated with recreating these catalogs would be classified as:

Accepted Answer

A)   menu costs.
B)   shoe-leather costs.
C)   tax distortions.
D)   printing costs.E) A) and B)
F) All of the above

Question 13

If the average price level increases 10 percent per year, and the velocity of money is 2, then the inflation rate is:

Accepted Answer

A)   10 percent.
B)   5 percent.
C)   2 percent.
D)   20 percent.E) A) and B)
F) A) and C)

Question 14

The aggregate price level is:

Accepted Answer

A)   a measure of the average price level for GDP.
B)   measured by the CPI.
C)   measured by the GDP price deflator.
D)   All of these statements are true.E) B) and C)
F) A) and D)

Question 15

If an economy has a money supply of $200, a velocity of money of 12, and a price level of $2, how many units of output does it produce?

Accepted Answer

A)   1,200
B)   2,400
C)   600
D)   6,000E) All of the above
F) A) and C)

Question 16

If an economy produces 5,000 units of output when the price level is $1 and the velocity of money is 4, what is the money supply?

Accepted Answer

A)   $4,000
B)   $1,250
C)   $2,500
D)   $5,000E) None of the above
F) A) and B)

Question 17

When an economy is producing at its potential level of output:

Accepted Answer

A)   cyclical unemployment is not occurring.
B)   structural unemployment is not occurring.
C)   frictional unemployment is not occurring.
D)   there is no unemployment.E) A) and B)
F) None of the above

Question 18

According to the quantity theory of money, a decrease in prices would occur due to:

Accepted Answer

A)   a decrease in the money supply.
B)   an increase in the money supply.
C)   a decrease in the production of output.
D)   an increase in the production of output.E) A) and B)
F) A) and D)

Question 19

If the Fed were to allow unemployment to remain at a higher level than the NAIRU:

Accepted Answer

A)   it could lead to deflation.
B)   inflation would likely occur.
C)   to the economy would not maintain full employment.
D)   monetary policy would not be effective.E) C) and D)
F) B) and C)

Question 20

The idea that changes in aggregate price levels do not affect real outcomes in the economy is called the:

Accepted Answer

A)   neutrality of money.
B)   aggregate price theory.
C)   neutrality of prices.
D)   real output theory.E) A) and D)
F) A) and C)

Exam 16: Inflation

According to the quantity theory of money, increasing the money supply:

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The aggregate price level is:

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The graph shown displays various price and output levels in an economy. If the economy is currently at point E2, what could be said about its unemployment?

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Khiem earns $50,000 per year and pays an annual income tax of 10 percent. Due to an inflation rate of 10 percent, his pay increases to $55,000, which puts him in a higher tax bracket where he must now pay 20 percent. Khiem has experienced:

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If the Fed were to allow unemployment to remain at a higher level than the NAIRU:

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If an economy has a money supply of $200, a velocity of money of 12, and a price level of $2, how many units of output does it produce?

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According to the quantity theory of money, a decrease in prices would occur due to:

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A period during which overall inflation rates are positive but falling is:

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When an economy is producing at its potential level of output:

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The lowest possible unemployment rate that will not cause the inflation rate to increase is called:

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If the average price level increases 10 percent per year, and the velocity of money is 2, then the inflation rate is:

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The line that shows the connection between inflation and unemployment in the short run is called the:

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If an economy produces 5,000 units of output when the price level is $1 and the velocity of money is 4, what is the money supply?

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The money value of goods or services sold is measured in:

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Conducting expansionary monetary policy when the economy is at its long-run equilibrium causes the Phillips curve to:

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The velocity of money is:

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The idea that changes in aggregate price levels do not affect real outcomes in the economy is called the:

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Headline inflation:

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If L.L.Bean decides to increase its prices due to general inflation, it must reprint the millions of catalogs it has already produced and distributed. The costs associated with recreating these catalogs would be classified as:

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If the Fed doubled the money supply in one day, the amount of goods and services traded would:

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The graph shown displays various price and output levels in an economy. If the economy is currently at point E₂, what could be said about its unemployment?

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