a. the income effect.
b. inflation.
c. deflation.
d. the substitution effect.
ANSWER: b
101. Large or persistent inflation is almost always caused by
a. excessive government spending.
b. excessive growth in the quantity of money.
c. foreign competition.
d. higher-than-normal levels of productivity.
ANSWER: b
102. In the short run, which of the following rates of growth in the money supply is likely to lead to the lowest level of unemployment in the economy?
a. 4 percent per year
b. 5 percent per year
c. 7 percent per year
d. 8 percent per year
ANSWER: d
103. In the short run, an increase in the money supply is likely to lead to
a. lower unemployment and lower inflation.
b. lower unemployment and higher inflation.
c. higher unemployment and lower inflation.
d. higher unemployment and higher inflation.
ANSWER: b
104. Suppose the Federal Reserve announces that it will be making a change to a key interest rate to increase the money supply. This is likely because
a. the Federal Reserve is worried about inflation.
b. the Federal Reserve is worried about unemployment.
c. the Federal Reserve is hoping to reduce the demand for goods and services.
d. the Federal Reserve is worried that the economy is growing too quickly.
ANSWER: b
105. Which of the following is the most correct statement about the relationship between inflation and unemployment?
a. In the short run, falling inflation is associated with falling unemployment.
b. In the short run, falling inflation is associated with rising unemployment.
c. In the long run, falling inflation is associated with falling unemployment.
d. In the long run, falling inflation is associated with rising unemployment.
ANSWER: b
106. Which of the following is an important cause of inflation in an economy?
a. Increases in productivity in the economy
b. The influence of positive externalities on the economy
c. Lack of property rights in the economy
d. Growth in the quantity of money in the economy
ANSWER: d
107. Which of the following claims is consistent with the views of mainstream economists?
a. If we increase the rate of inflation from 4 percent to 6 percent, then the rate of unemployment will temporarily fall.
b. If we increase the rate of inflation from 4 percent to 6 percent, then the rate of unemployment will temporarily rise.
c. If we increase the rate of inflation from 4 percent to 6 percent, then the rate of unemployment will permanently fall.
d. If we increase the rate of inflation from 4 percent to 6 percent, then the rate of unemployment will permanently rise.
ANSWER: a
108. For a very long time the country of Tofu has had an inflation rate of 8 percent. Suddenly its inflation rate drops to 3 percent. The drop in the inflation rate
a. could be due to slower money supply growth. We would expect unemployment to be higher.
b. could be due to slower money supply growth. We would expect unemployment to be lower.
c. could be due to higher money supply growth. We would expect unemployment to be higher.
d. could be due to higher money supply growth. We would expect unemployment to be lower.
ANSWER: a
109. For a number of years country A had inflation of 3 percent but for the last five years has had inflation of 6 percent. Country B had inflation of 4 percent for many years, but very recently inflation unexpectedly rose to 9 percent. Other things the same, in which of the countries would the higher inflation rate be more likely to reduce unemployment?
a. both country A and country B
b. neither country A nor country B
c. country A but not country B
d. country B but not country A
ANSWER: d
110. During the 1990s, the United Kingdom experienced low levels of inflation while Turkey experienced high levels of inflation. A likely explanation of these facts is that
a. the United Kingdom has a better education system than Turkey.
b. the rate of growth of the quantity of money was slower in the United Kingdom than in Turkey.