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TheEconomicsofMoney,Banking,andFinancialMarkets,9e（Mishkin）Chapter24MoneyandInflation

24.1MoneyandInflation:

Evidence

1）Theconditionofacontinuallyrisingpricelevelisdefinedas

A）stagflation.

B）stagnation.

C）disinflation.

D）inflation.

Answer:

D

QuesStatus:

PreviousEdition

2）Theeconomistwhoproposedthat,"Inflationisalwaysandeverywhereamonetaryphenomenon"was

A）JohnMaynardKeynes.

B）JohnR.Hicks.

C）MiltonFriedman.

D）FrancoModigliani.

Answer:

C

QuesStatus:

PreviousEdition

3）CompleteMiltonFriedman'sfamousproposition:

"Inflationisalwaysandeverywherea

phenomenon."

A）monetary

B）political

C）policy

D）budgetaryAnswer:

A

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PreviousEdition

4）Atfirstcut,thesimplesolutiontofightinginflationis

A）reducingthegrowthrateofthemoneysupply.

B）limitingthenumberoftermsthatpoliticianscanserveinelectiveoffice.

C）returningtheeconomytobarterbyprohibitingtheuseoffiatmoney.

D）toimposepricecontrolsonbusinessesthatattempttoraiseprices.Answer:

A

QuesStatus:

PreviousEdition

5）"Howdowepreventtheinflationaryfirefromignitingagainandstoptherollercoasterrideintheinflationrateofthelast40years?

"MiltonFriedman'sfamouspropositionsuggeststhesimplesolution:

A）reducethenumberoftermsthatpoliticiansareallowedtoserve.

B）reducethegrowthrateofthemoneysupply.

C）reducethemarginaltaxrateonlow-incomewageearners.

D）increasethemarginaltaxratesonbusinessesthathikepricesinexcessof5percentperyear.Answer:

B

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PreviousEdition

16

6）MiltonFriedman'spropositionconcerningthecauseofinflationimpliesasimplesolutiontotheinflationproblem:

A）reducegovernmentbudgetdeficits.

B）limittheabilityoffiscalpolicymakerstobringpressuretobearonthemonetaryauthority.

C）limitthenumberoftermsthatpoliticiansareallowedtoserve.

D）reducethegrowthrateofthemoneysupply.Answer:

D

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PreviousEdition

7）MiltonFriedman'spropositionthatinflationisalwaysandeverywhereamonetaryphenomenonholdsonlyif

A）governmentbudgetdeficitsdonotrisecontinually.

B）theunemploymentratedoesnotrisecontinually.

C）thepricelevelrisescontinually.

D）theUnitedStatesdoesnotexperiencemorethanonenegativesupplyshockperdecade.Answer:

C

QuesStatus:

PreviousEdition

8）Inflationoccurswhenever

A）thepricelevelrises.

B）themoneysupplyincreases.

C）thepricelevelrisescontinuouslyoveraperiodoftime.

D）thepricelevelfallscontinuouslyoveraperiodoftime.Answer:

C

QuesStatus:

PreviousEdition

9）Evidencestronglysupportstheviewthatcountrieswithhighinflationalsohave

A）thelowestnominalinterestrates.

B）thehighestratesofmoneygrowth.

C）thesmallestbudgetdeficits.

D）thelowestinterestrates.Answer:

B

QuesStatus:

PreviousEdition

10）Countrieswiththehighestinflationratesarelikelytohave

A）thehighestratesofmoneygrowth.

B）smallbudgetdeficitsrelativetoGDP.

C）thelowestinterestrates.

D）nonaccommodatingmonetarypolicy.Answer:

A

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PreviousEdition

11）Thepropositionthatinflationistheresultofahighrateofmoneygrowthis

A）notsupportedbyevidencefromtheGermanhyperinflation.

B）heldonlybysociologistsandisnolongerbelievedbyeconomists.

C）supportedbyevidencefrominflationaryepisodesthroughouttheworld.

D）largelyapoliticalfabricationdesignedtomaketheFedascapegoatforpoorfiscalpolicy.Answer:

C

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PreviousEdition

12）Whichofthefollowingwouldprovidethestrongestevidencethatrapidmoneygrowthisthedrivingforcebehindinflation?

A）Anendogenousincreaseinthemoneysupplythatprecededtheonsetofinflation.

B）Anexogenousincreaseinthemoneysupplythatprecededtheonsetofinflation.

C）Anendogenousincreaseinthemoneysupplythatlaggedtheonsetofinflation.

D）Anexogenousincreaseinthemoneysupplythatlaggedtheonsetofinflation.Answer:

B

QuesStatus:

PreviousEdition

13）TheZimbabweanhyperinflationof2008supportsthepropositionthatexcessivemonetarygrowthcausesinflationandnottheotherwayaroundsincetheincreaseinmonetarygrowthappearstohavebeen

A）unintentional.

B）intentional.

C）endogenous.

D）exogenous.

Answer:

D

QuesStatus:

Revised

14）TheGermanhyperinflationof1921-1923providesimportantsupportfortheviewthathighmoneygrowthresultswhen

A）thegovernmentsetsanemploymenttargetthatistoohigh.

B）thegovernmentexpandsthemoneysupplytofinanceitsexpenditures.

C）thegovernmentraisestaxestofinanceitsexpenditures.

D）thegovernmentsellsbondstothepublic.Answer:

B

QuesStatus:

PreviousEdition

24.2MeaningofInflation

1）Aone-timeincreaseinthepricelevel

A）israrelyreportedbythenewsmediaasinflation,butisneverthelessconsideredtobeinflationbyeconomists.

B）isregularlyreportedbythenewsmediaasinflation,butisnotconsideredtobeinflationbyeconomists.

C）israrelyreportedbythenewsmediaasinflationbecauseitisnotconsideredtobeinflationbyeconomists.

D）isregularlyreportedbythenewsmediaasinflationbecauseitisconsideredtobeinflationbyeconomists.

Answer:

B

QuesStatus:

PreviousEdition

2）Wheninflationisdefinedtobeaconditionofacontinuallyrisingpricelevel, economistsagreewithMiltonFriedman'spropositionthatinflationisamonetaryphenomenon.

A）no

B）veryfew

C）abouthalfofpracticing

D）almostallAnswer:

D

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PreviousEdition

24.3ViewsofInflation

1）Accordingtoaggregatedemandandsupplyanalysis,inflationiscausedby

A）supplyshocks.

B）expansionaryfiscalpolicies.

C）expansionarymonetarypolicies.

D）risingprices.

Answer:

C

QuesStatus:

PreviousEdition

2）Accordingtoaggregatedemandandsupplyanalysis,acontinuallyincreasingmoneysupplycausesa inaggregatedemand,everythingelseheldconstant.

A）continualincrease

B）continualdecrease

C）one-timeincrease

D）one-timedecreaseAnswer:

A

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PreviousEdition

3）Accordingtoaggregatedemandandsupplyanalysisofinflationandwitheverythingelseheldconstant,acontinuallyincreasingmoneysupplycauses

A）aggregatedemandtoincreasealongastationaryaggregatesupplycurve,leadingtocontinuallyincreasingaggregateoutputandprices.

B）aggregatesupplytodecreasealongastationaryaggregatedemandcurve,leadingtocontinuallycontractingaggregateoutputandprices.

C）aggregatedemandtoincreasecontinuallyasaggregatesupplydecreasescontinually,leadingtohigherandhigherpricelevels.

D）aggregatedemandtodecreasecontinuallyasaggregatesupplyincreasescontinually,leadingtohigherandhigherpricelevels.

Answer:

C

QuesStatus:

PreviousEdition

4）Aggregatedemandandsupplyanalysisconcludethatcontinuouslygrowing willcausethepriceleveltorisecontinually,thusgeneratinginflation.

A）moneysupply

B）governmentspending

C）interestrates

D）consumerexpenditureAnswer:

A

QuesStatus:

Revised

5）Accordingtoaggregatedemandandsupplyanalysisandwitheverythingelseheldconstant,acontinuousincreaseinthemoneysupplycauses

A）thepriceleveltoincrease,buthasnolastingeffectontheinflationrate.

B）thepriceleveltofall.

C）inflation.

D）outputtoincrease,butleavesthepricelevelandinflationunchanged.Answer:

C

QuesStatus:

PreviousEdition

6）Accordingtoaggregatedemandandsupplyanalysis,anincreaseingovernmentspendingwillcauseaggregatedemandto ,causingoutputto ,everythingelseheldconstant.

A）increase;fall

B）increase;rise

C）decrease;fall

D）decrease;riseAnswer:

B

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PreviousEdition

7）Aggregatedemandandsupplyanalysisindicatesthatnegativesupplyshocks

A）decreasethepricelevel,butcannotdecreasetheinflationrate.

B）increasethepricelevel,butcannotincreasetheinflationrate.

C）increaseboththepricelevelandtheinflationrate.

D）decreaseboththepricelevelandtheinflationrate.Answer:

B

QuesStatus:

PreviousEdition

8）Supposethattheeconomyisatthenaturalrateofoutput.Intheabsenceofaccommodatingpolicyandeverythingelseheldconstant,thenetresultofanegativesupplyshockisthat

A）theeconomyreturnstofullemploymentattheinitialpricelevel.

B）theeconomyreturnstofullemploymentatahigherpricelevel.

C）theeconomyreturnstofullemploymentatalowerpricelevel.

D）aggregateoutputincreasesabovethenaturalratelevel,butonlytemporarily.Answer:

A

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PreviousEdition

9）Explainandshowgraphicallywhycontinuousmonetarygrowthisneededtogenerateinflation.Describehowtheinflationprocessisgenerated.

Answer:

Seefigurebelow.

Onlycontinuousmonetarygrowthcancausecontinuousincreasesinaggregatedemandofthesortneededtogenerateinflation.Otherfactorscanincreasedemandandthepricelevel,butnonecanincreasedemandcontinuously.Inthegraph,themonetaryexpansionincreasesAD.TheincreaseinoutputabovethenaturalrateincreaseswagesanddecreasesAS.MonetaryexpansionincreasesADrepeatedly,andwagescontinuetoadjustupward.

QuesStatus:

PreviousEdition

10）Supposethattheeconomyisatthenaturalrateofoutput.Explainhowapositivesupplyshock,followedbyamorerestrictivemonetarypolicy,allowspolicymakersapainlesswaytoreduceinflation.

Answer:

Thepositivesupplyshockincreasesaggregatesupply,exertingdownwardpressureonprices.Policymakerscannowreducedemandtofurtherreduceinflationarypressurewithoutreducingoutputbelowthenaturalrate.

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