Question 1

There are no costs to inflation if it is fully anticipated.

Accepted Answer

Even if inflation is fully anticipated, there are still costs such as menu costs (the costs of changing prices), shoe leather costs (the costs associated with more frequent transactions or withdrawals of money), and the distortions it can cause in taxation and savings.

Question 2

The recession of 2007-2009 and its aftermath had different effects on various sectors of the economy.In August 2011,the overall unemployment rate in the United States was 9.1 percent.Which of the following sectors of the U.S.economy had a much lower unemployment rate than 9.1 percent in August 2011?

Accepted Answer

Education and health services had a much lower unemployment rate than 9.1 percent in August 2011. The sector maintained a steady level of employment throughout the recession and even showed growth in hiring during some months. In contrast, the construction industry was hit hard during the recession, with many workers being laid off and the unemployment rate reaching a high of 27.1 percent in February 2010. Leisure and hospitality and professional and business services also had higher unemployment rates than education and health services during the same period.

Question 3

Describe how a lender can lose during inflation if the inflation is unanticipated and the loan is a fixed-interest-rate loan.How would a variable-interest-rate loan (one that adjusts over the contract period)eliminate these loses?

Accepted Answer

The answer of Describe how a lender can lose during...

Question 4

Which of the following is not a cost posed by inflation?

Accepted Answer

The answer of Which of the following is not a...

Question 5

The problem with inflation is that as prices rise,consumers can no longer afford to buy as many goods and services.

Accepted Answer

The answer of The problem with inflation is that as...

Question 6

The deflation of the 1930s impacted the U.S.economy because it led some consumers to ________ and because it ________.

Accepted Answer

The deflation of the 1930s led some consumers to postpone purchases while they waited for prices to fall even lower, which decreased the demand for goods and services and slowed economic growth. Additionally, deflation increased the burden on borrowers since the real value of their outstanding debts increased as prices fell.

Question 7

Explain why you would rather be a borrower during a period of unexpected rising inflation,and a lender during a period of unexpected declining inflation.

Accepted Answer

The answer of Explain why you would rather be a...

Question 8

Inflation redistributes income to a greater extent when the inflation is unanticipated compared to when the inflation is anticipated.

Accepted Answer

When inflation is unanticipated, individuals and businesses may be caught off guard and not adjust their behavior, leading to a greater redistribution of income. When inflation is anticipated, individuals and businesses may take measures to protect themselves, such as adjusting wages and prices, leading to a lesser extent of income redistribution.

Quiz 9: Unemployment and Inflation