Question 1

Conservatives argue that inflation is&#10;A) caused by too much money chasing too few goods.&#10;B) a necessary feature of macroeconomy.&#10;C) not associated with expansionary fiscal policies.&#10;D) best controlled through frequent manipulation of the money supply.

Accepted Answer

Conservatives believe that inflation is caused by too much money (increased money supply) chasing too few goods (limited supply of goods and services). Therefore, they argue that the best way to control inflation is to limit the growth of the money supply.

Question 2

Inflation is best defined as&#10;A) a sustained increase in the general level of prices.&#10;B) the price level.&#10;C) a decline in the general level of prices.&#10;D) None of the above.

Accepted Answer

Inflation refers to a sustained increase in the general level of prices over a period of time. This means that the prices for goods and services are rising, reducing the purchasing power of money over time.

Question 3

Liberals maintain that the significant inflationary episodes of the 1970s and early 1980s were caused mostly by&#10;A) Keynesian policies.&#10;B) policy neglect.&#10;C) mismeasurement by the Consumer Price Index.&#10;D) structural changes in the economy and random shocks.

Accepted Answer

Liberals argue that significant inflation in the 1970s and early 1980s was caused by structural changes in the economy, such as the energy crisis and increased global competition, as well as random shocks such as crop failures and geopolitical events. They do not believe that inflation was caused by Keynesian policies or policy neglect, and while some may argue that mismeasurement by the Consumer Price Index played a role, this is not the primary explanation offered by liberals.

Question 4

Liberals argue that monetarist policies&#10;A) are the only way to deal with inflation.&#10;B) cause high interest rates that hamper investment in the productive base of the economy.&#10;C) are justified by the tight relationship between the money supply and GDP.&#10;D) work better than fiscal policy.

Accepted Answer

Liberals argue that monetarist policies, which focus on controlling the money supply to manage inflation, cause high interest rates that hamper investment in the productive base of the economy. They advocate for a mix of fiscal and monetary policies to manage the economy.

Question 5

Conservatives favor&#10;A) establishing a rate of growth in the money supply that is fairly constant from year to year.&#10;B) routinely manipulating taxes and government spending to stabilize the economy.&#10;C) deficit spending.&#10;D) focusing on unemployment rather than inflation in devising discretionary policies.

Accepted Answer

Conservatives typically advocate for a stable and predictable monetary policy, which can be achieved by establishing a consistent rate of growth in the money supply. This approach helps to prevent excessive inflationary pressures while promoting long-term economic growth. Conservatives generally prefer to rely on market forces rather than government intervention to stabilize the economy, and they tend to be skeptical of deficit spending as a means of stimulating economic growth. Finally, while conservatives do care about reducing unemployment, they believe that this goal is best achieved by implementing policies that promote economic growth rather than focusing on short-term measures to reduce unemployment rates.

Question 6

At the beginning and end of the nineteenth century, the retail price level in the United States&#10;A) increased.&#10;B) decreased.&#10;C) was about the same.&#10;D) None of the above.

Accepted Answer

At the beginning and end of the nineteenth century, the retail price level in the United States was about the same, despite fluctuations during the century.

Question 7

&#34;Monetarism&#34; presumes what kind of relationship between output and money supply growth?&#10;A) No relationship.&#10;B) An inverse relationship.&#10;C) A stable and predictable relationship.&#10;D) Cannot be determined because money and credit are always &#34;neutral&#34; factors.

Accepted Answer

Monetarism assumes a stable and predictable relationship between output and money supply growth, with increases in the money supply leading to increases in output and inflation in the long run.

Question 8

Radicals argue that inflation versus unemployment is a false trade-off because&#10;A) the monetary authorities are mostly concerned with keeping real wages down, not how low the unemployment rate gets.&#10;B) the government can always employ workers at any rate of inflation.&#10;C) the government always overstates measured inflation.&#10;D) the Federal Reserve Board does not have a good measure of money.

Accepted Answer

Radicals argue that the monetary authorities are mostly concerned with keeping real wages down, not how low the unemployment rate gets. They do not view inflation versus unemployment as a true trade-off as traditional economic theory suggests.

Question 9

Conservative policies that aim for a 0 percent inflation rate would be most fervently supported by&#10;A) labor unions.&#10;B) manufacturers.&#10;C) banks and insurance companies.&#10;D) politicians.

Accepted Answer

Banks and insurance companies benefit from a stable and predictable economy, which is more likely with a 0 percent inflation rate. Manufacturers may prefer a slightly higher inflation rate to make their exports more competitive, while labor unions may advocate for slightly higher inflation to maintain wage growth. Politicians may have varying views on inflation rates depending on their economic ideology and goals.

Question 10

During the 1970s, Republican presidents Richard Nixon and Gerald Ford and Democratic president Jimmy Carter all attempted to control inflation by&#10;A) deregulating most industries.&#10;B) nationalizing large oil producers.&#10;C) ending unemployment insurance.&#10;D) using both voluntary and mandatory price controls.

Accepted Answer

Both Republican presidents Richard Nixon and Gerald Ford and Democratic president Jimmy Carter attempted to control inflation by using both voluntary and mandatory price controls. They believed that by limiting the prices charged by producers and retailers, they could limit the rise in prices for consumers, thereby reducing inflation. However, this approach proved to be ineffective in the long run as it created shortages in goods and services, leading to further economic problems.

Question 11

Liberals argue against the Conservative &#34;monetarist&#34; program to control inflation because&#10;A) the relationship between output, employment, and money supply growth is not stable and predictable.&#10;B) a fixed money supply growth rule prevents government and monetary authorities from accommodating the vagaries of each business cycle.&#10;C) structural factors such as technological change, global competition, and income inequality have restrained and/or depressed labor costs.&#10;D) All of the above.

Accepted Answer

The answer of Liberals argue against the Conservative &#34;monetarist&#34; program...

Question 12

Since the mid-1990s, the Federal Reserve has sought to maintain a relatively low rate of inflation by&#10;A) consistently raising short- and long-term interest rates.&#10;B) restricting the amount of cash in bank vaults.&#10;C) deregulating credit card companies.&#10;D) generally accommodating the money and credit needs of the economy.

Accepted Answer

The answer of Since the mid-1990s, the Federal Reserve has...

Question 13

According to the Liberal paradigm, &#34;inflation is always and everywhere a monetary phenomena.&#34;

Accepted Answer

The answer of According to the Liberal paradigm, &#34;inflation is...

Question 14

Conservatives claim that inflation has historically been overstated, based on faulty computation procedures by the Bureau of Labor Statistics.

Accepted Answer

The answer of Conservatives claim that inflation has historically been...

Question 15

Radicals view long-term price stability as an important macroeconomic goal.

Accepted Answer

The answer of Radicals view long-term price stability as an...

Question 16

Since the mid-1990s, inflation has averaged less than 4 percent.

Accepted Answer

The answer of Since the mid-1990s, inflation has averaged less...

Question 17

Conservatives see deregulation as an important policy to reduce inflation.

Accepted Answer

The answer of Conservatives see deregulation as an important policy...

Question 18

Liberals believe that excessive labor union power was largely responsible for the high inflation of the late 1970s and early 1980s.

Accepted Answer

The answer of Liberals believe that excessive labor union power...

Question 19

Radicals favor abolishing the Federal Reserve Board.

Accepted Answer

The answer of Radicals favor abolishing the Federal Reserve Board....

Question 20

Inflation hurts debtors more than creditors.

Accepted Answer

The answer of Inflation hurts debtors more than creditors....

Question 21

Germany's experience with hyperinflation was a contributing factor to the rise of Adolph Hitler and World War II.

Accepted Answer

The answer of Germany's experience with hyperinflation was a contributing...

Question 22

Conservatives claim that monetary policy should accommodate changes in inflation-adjusted GDP.

Accepted Answer

The answer of Conservatives claim that monetary policy should accommodate...

Question 23

The demand-management policies of the 1960s achieved a lower inflation rate compared to the supply-side polices of the 1980s.

Accepted Answer

The answer of The demand-management policies of the 1960s achieved...

Question 24

The Taylor Rule states that short-term interest rates should be manipulated to achieve an acceptable balance between full employment and long-term inflation.

Accepted Answer

The answer of The Taylor Rule states that short-term interest...

Deck 12: Inflation: Can Price Pressures Be Kept Under Control