Homework Questions

Question 1

The price level rises by 5% in 2015 and by 7% in 2016. Which of the following is true?
Inflation occurred in 2016
Disinflation occurred between 2015 and 2016
Deflation occurred between 2015 and 2016
Both a. and b.

Answer 1

Inflation occurred in 201

Question 2

Suppose the price level decreases. Which of the following is true?
Quantity of money demanded increases
The value of money increases
Quantity of money demanded decreases
Both b. And c.

Answer 2

Both b. And c.

Question 3

The Federal Reserve increases the money supply. Which of the following occurs in the market for money?
The Value of money increases
The Value of money decreases
The price level decreases
None of the above

Answer 3

The Value of money decreases

Question 4

The Quantity Theory of Money assumes that the velocity of money is constant, and that changes in the money supply do not influence production. Given these assumptions, what will be the impact of a decrease in the money supply?
The price level will decrease
GDP will decrease
Velocity of money decreases
There will be inflation

Answer 4

The price level will decrease

Question 5

Suppose a lender requires a return of 3% to remain in business. They expect inflation to be 4% annually in the future. What nominal interest rate will this lender set on loans to borrowers in order to earn a real return of 3% on their investment?
10%
1%
7%
-1%

Answer 5

7%

Question 6

Suppose the lender in the previous example sets their nominal interest rate, and then experiences actual inflation of 6% annually (rather than the 4% inflation they expected). Which of the following is true?
The real interest rate earned by the lender decreased by 2%
The real interest rate earned by the lender increased 4%
The real interest rate paid by the borrower increased 2%
The real interest rate earned by the lender decreased 6%

Answer 6

The real interest rate earned by the lender decreased by 2%

Question 7

Which of the following is an example of a menu cost of inflation?
Inflation reduces the incentive for individuals to save, leading to inefficient allocation of resources
Inflation causes a hardware store to routinely require workers to change prices displayed on products in their store
Inflation results in taxes having a greater impact the real return for lenders
All of the above

Answer 7

Inflation causes a hardware store to routinely require workers to change prices displayed on products in their store

Question 8

The United States often runs a trade deficit. This means imports are greater than exports.
True
False

Answer 8

True

Question 9

Savings for an economy is greater than investment. This means which of the following?
Net Exports is positive
Net Exports is negative
Net Exports is equal to zero
None of the above

Answer 9

Net Exports is positive

Question 10

Savings for an economy is greater than investment. This means which of the following?
Net capital outflow is positive
The purchase of foreign assets by domestic residents is greater than the purchase of domestic assets by foreigners
Net capital outflow is negative
Both a. and b.

Answer 10

Both a. and b.

Question 11

Income in China increases. Which of the following occurs in the United States?
Net exports increase
Imports increase
Exports decrease
Net exports decrease

Answer 11

Net exports increase

Question 12

The real interest rate paid on United States assets decreases. Which of the following occurs in the United States?
Net capital outflow increases
Net capital outflow decreases
Foreign purchases of US assets increases
None of the above

Answer 12

Net capital outflow increases

Question 13

An economy experiences nationwide mortgage defaults as a result of lax lending standards. Financial assets in this nation are riskier as a result. Which of the following will occur in this nation?
Net capital outflow increases
Net capital outflow decreases
Foreign purchases of domestic assets decreases
Both a. And c.

Answer 13

Both a. And c.

Question 14

The exchange rate changes from 5 €/$ to 8 €/$. Which of the following is true?
The dollar appreciated
The dollar depreciated
The euro appreciated
Both a. And c.

Answer 14

The dollar appreciated

Question 15

Suppose the real exchange rate between the euro and the dollar remains constant. The United States conducts expansionary monetary policy, leading to inflation in the long run. Which of the following will occur?
The price level in Europe increases
The nominal exchange rate (€/$) decreases
The nominal exchange rate (€/$) increases
The price level in Europe decreases

Answer 15

The nominal exchange rate (€/$) decreases

Question 16

Suppose the government increases spending. Which of the following occurs in the market for loanable funds?
The real interest rate increases
The real interest rate decreases
Supply of loanable funds increases
Both a. And c.

Answer 16

The real interest rate increases

Question 17

The real interest rate in the United States increases. This causes investors to purchase more United States assets and less foreign assets. Which of the following occurs in the exchange rate market?
The real exchange rate decreases
The quantity of dollars exchanged increases
The real exchange rate increases
None of the above

Answer 17

The real exchange rate increases

Question 18

The real exchange rate increases. Which of the following occurs?
Net exports increases
Net exports decreases
Net exports remain constant
None of the above

Answer 18

Net exports decreases

Question 19

Suppose the Fed conducts expansionary monetary policy, leading to higher than expected inflation. Which of the following occurs?
Firms decrease production
Consumers increase purchases
Firms increase production
Consumers increase investment spending

Answer 19

Firms increase production

Question 20

An economy is in a recession. Which of the following occurs in the long run in the aggregate demand and supply model?
AD shifts to the right as consumers increase spending
AS shifts to the left as firms reduce production
AS shifts to the right as inflation expectations decrease
AD shifts to the right as Investment spending increases

Answer 20

AS shifts to the right as inflation expectations decrease