Question 1

List and define any three of the six costs of high inflation.

Accepted Answer

The answer of List and define any three of the...

Question 2

When prices are falling, economists say that there is

Accepted Answer

When prices are falling, economists say that there is deflation. Disinflation refers to a decrease in the rate of inflation, while a contraction refers to a decrease in economic activity. An inverted inflation is not a recognized economic term.

Question 3

Which of the following statements is NOT true?

Accepted Answer

Deflation is not good for workers as it can lead to unemployment and lower consumer demand, making it difficult for them to find employment opportunities.

Question 4

What assumptions are necessary to argue that the quantity equation implies that increases in the money supply lead to proportional changes in the price level?

Accepted Answer

The answer of What assumptions are necessary to argue that...

Question 5

Deflation

Accepted Answer

Deflation decreases the overall level of prices, which decreases consumer demand and can lead to lower incomes for producers. This can make it harder for debtors to pay off their debts.

Question 6

Define each of the symbols and explain the meaning of M x V = P x Y.

Accepted Answer

The answer of Define each of the symbols and explain...

Question 7

Which of the following statements is NOT true?

Accepted Answer

The statement "the so-called inflation tax does not affect those people whose incomes do not rise with inflation" is false. The inflation tax affects everyone in the economy, regardless of whether or not their incomes rise with inflation. This is because inflation reduces the real value of money holdings and therefore reduces everyone's purchasing power.

Question 8

Suppose that, because of inflation, a business in Russia must calculate, print, and mail a new price list to its customers each month. This is an example of

Accepted Answer

The situation described is an example of menu costs, which are the costs incurred by a firm in order to adjust its prices due to inflation or other economic conditions. These costs include the time and money required to calculate and print new price lists, as well as the inconvenience to customers who must obtain and adjust to the new prices.

Question 9

According to the classical dichotomy, what changes nominal variables? What changes real variables?

Accepted Answer

The answer of According to the classical dichotomy, what changes...

Question 10

Wages and prices are many times higher today than they were 30 years ago, yet people do not work a lot more hours or buy fewer goods. How can this be?

Accepted Answer

The answer of Wages and prices are many times higher...

Question 11

Some economists feel inflation is bad

Accepted Answer

Some economists argue that inflation is bad because it leads to an arbitrary redistribution of income. This is because inflation erodes the purchasing power of money, which adversely affects people on fixed incomes or those who are unable to quickly adjust their wages or prices. Inflation can also lead to a shift in relative prices, which may benefit some groups while harming others.

Question 12

Using separate graphs, demonstrate what happens to the money supply, money demand, the value of money, and the price level if:
a. The central bank increases the money supply.
b. People decide to demand less money at each value of money.

Accepted Answer

The answer of Using separate graphs, demonstrate what happens to...

Question 13

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent.

Accepted Answer

The answer of Suppose that velocity and output are constant...

Question 14

Which of the following costs of inflation does not occur when inflation is constant and predictable?

Accepted Answer

When inflation is constant and predictable, arbitrary redistributions of wealth do not occur because individuals and businesses can plan for the inflation and adjust their contracts and financial arrangements accordingly.

Question 15

What is the inflation tax, and how might it explain the creation of inflation by a central bank?

Accepted Answer

The answer of What is the inflation tax, and how...

Question 16

Suppose a central bank sells government bonds. Use a graph of the money market to show what this does to the value of money.

Accepted Answer

The answer of Suppose a central bank sells government bonds....

Question 17

Suppose that, because of inflation, people in Zimbabwe go to the bank each day to withdraw their daily currency needs. This is an example of

Accepted Answer

This situation is an example of shoeleather costs, which are the costs associated with increased efforts to reduce cash balances due to inflation. People in Zimbabwe need to withdraw their daily currency needs because of the rapid inflation, which requires them to make more trips to the bank and spend more time and effort in managing their finances.

Question 18

Unanticipated inflation benefits

Accepted Answer

Unanticipated inflation benefits borrowers at the expense of lenders. This is because borrowers get to repay their loans in inflated currency, which is worth less than the currency they borrowed. Lenders, on the other hand, receive less purchasing power when they are repaid in inflated currency. Other options listed are not accurate.

Question 19

Economists agree that increases in the money-supply growth rate increase inflation and that inflation is undesirable. So why have there been hyperinflations and how have they been ended?

Accepted Answer

The answer of Economists agree that increases in the money-supply...

Quiz 28: Money Growth and Inflation

List and define any three of the six costs of high inflation.

When prices are falling, economists say that there is

Which of the following statements is NOT true?

What assumptions are necessary to argue that the quantity equation implies that increases in the money supply lead to proportional changes in the price level?

Deflation

Define each of the symbols and explain the meaning of M x V = P x Y.

Which of the following statements is NOT true?

Suppose that, because of inflation, a business in Russia must calculate, print, and mail a new price list to its customers each month. This is an example of

According to the classical dichotomy, what changes nominal variables? What changes real variables?

Wages and prices are many times higher today than they were 30 years ago, yet people do not work a lot more hours or buy fewer goods. How can this be?

Some economists feel inflation is bad

Using separate graphs, demonstrate what happens to the money supply, money demand, the value of money, and the price level if: a. The central bank increases the money supply. b. People decide to demand less money at each value of money.

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent.

Which of the following costs of inflation does not occur when inflation is constant and predictable?

What is the inflation tax, and how might it explain the creation of inflation by a central bank?

Suppose a central bank sells government bonds. Use a graph of the money market to show what this does to the value of money.

Suppose that, because of inflation, people in Zimbabwe go to the bank each day to withdraw their daily currency needs. This is an example of

Unanticipated inflation benefits

Economists agree that increases in the money-supply growth rate increase inflation and that inflation is undesirable. So why have there been hyperinflations and how have they been ended?