Question 1

Explain how inflation affects savings.

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Question 2

Over the last 70 years,the average annual U.S.inflation rate was about

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Question 3

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?

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Question 4

In recent years Venezuela and Russia have had much higher nominal interest rates than the United States while Japan has had lower nominal interest rates.What would you predict is true about money growth in these other countries? Why?

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Question 5

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

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Question 6

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

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Question 7

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

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Question 8

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?

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Question 9

List and define any two of the costs of high inflation.

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Question 10

Inflation can be measured by the

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Inflation is typically measured by the percentage change in the consumer price index (CPI), which is calculated by comparing the price of a basket of goods and services over time. This provides a broader measure of overall inflation in an economy than just looking at the price change of a single commodity.

Question 11

The U.S.Treasury Department began issuing inflation-indexed bonds in early 1997.Since these assets are virtually risk free,both in terms of default risk and inflation risk,will they quickly replace all other kinds of assets that still entail risk of one kind or another,such as ordinary government bonds or corporate bonds? Explain.

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Question 12

The U.S.Treasury Department issues inflation-indexed bonds.What are inflation-indexed bonds and why are they important?

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Question 13

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

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Question 14

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

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Question 15

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?

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Question 16

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?

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Question 17

Which of the following is not correct?

Accepted Answer

The statement is incorrect because U.S. inflation has shown significant variation over the last 40 years, with periods of high inflation in the late 1970s and early 1980s, and more recently, higher inflation rates post-2020.

Question 18

Inflation distorts relative prices.What does this mean and why does it impose a cost on society?

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Question 19

Over the past 70 years,prices in the U.S.have risen on average about

Accepted Answer

According to historical data, the average annual inflation rate in the U.S. over the past 70 years has been around 4 percent. This means that on average, prices for goods and services have increased by around 4 percent every year over this period. Since this inflation rate has been relatively consistent over time, it is a useful benchmark for predicting future inflation and for making investment decisions.

Question 20

Over the past 70 years,the overall price level in the U.S.has experienced a(n)

Accepted Answer

The correct answer is D because over the past 70 years, the Consumer Price Index (CPI) has increased from approximately 24 in 1950 to over 250 in 2020. This represents a 16-fold increase in prices.

Quiz 30: Money Growth and Inflation