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Economics, 7/e
David Begg, Birkbeck College, University of London
Rudiger Dornbusch
Stanley Fischer

Inflation, expectations, and credibility

Self-test Questions

Select the radio button corresponding to your choice of answer for each question, and then click on "Submit Answers" to find out how many you answered correctly.

1

The quantity theory of money says that changes in ___________ lead to equivalent changes in __________, but have no effect on ___________
A)prices, wages, output and employment
B)output, prices, employment
C)nominal money, the price level, output and employment
D)nominal money, output, prices
2

Monetarists believe that a reduction in _____________can be achieved by reducing ________
A)unemployment, prices
B)inflation, wages
C)unemployment, wages
D)inflation, nominal money
3

If it is observed that there is a strong association between nominal money growth and nominal interest rates, then we have observed evidence in support of _____________
A)the quantity theory of money
B)the Phillips hypothesis
C)the Fisher hypothesis
D)the classical model
4

During periods of rising inflation and rising interest rates we expect the demand for real cash to
A)rise
B)fall
C)not change
D)fluctuate
5

Governments may contribute to inflationary pressure on account of building up large _________
A)numbers of employees
B)welfare plans
C)budget deficits
D)expenditure
6

The Phillips curve shows the trade-off between ____________ and ____________
A)the inflation rate, interest rates
B)the inflation rate, the unemployment rate
C)interest rates, output
D)output, employment
7

The long-run Phillips curve is __________ at the ________________
A)horizontal, natural rate of inflation
B)horizontal, natural rate of unemployment
C)vertical, natural rate of inflation
D)vertical, natural rate of unemployment
8

The short run Phillips curve can shift in response to changes in ____________
A)Inflationary expectations
B)unemployment
C)the inflation rate
D)wage rates
9

The costs of inflation are
A)shoe leather costs
B)menu costs
C)income redistribution
D)uncertainty
E)all of the above
10

Faster nominal money growth leads to either higher inflation or higher nominal interest rates, but not both
A)TRUE
B)FALSE
11

The natural rate of unemployment, the rate of unemployment in long run equilibrium is determined by the underlying rate of inflation
A)TRUE
B)FALSE
12

Only an incomes policy can deliver low inflation in the long run
A)TRUE
B)FALSE