Question 1

History proves that:

A. Countries with low rates of money growth have high rates of inflation

B. Money growth and inflation are not related

C. Countries with high rates of money growth have high rates of inflation

D. Money growth rates equal inflation rates

Question 2

Consider the following ratio: the average annual inflation rate/theaverage annual money growth rate. If a country's rate of money growthconsistently exceeds the rate of inflation the ratio would be:

A. Less than one

B. Greater than one

C. That is infinite

D. Exactly one

Question 3

If the nominal interest rate increases:

A. The cost of holding money decreases

B. The cost of holding money increases

C. The velocity of money should decrease

D. The cost of holding money increases and the velocity of money shoulddecrease

Question 4

The Fed hopes to impact short-run inflation and output byaltering:

A. The production function

B. Aggregate supply

C. Aggregate demand

D. Fiscal policy

Question 5

For central bankers to alter the real interest rate by changing thenominal interest rate, which of the following must be true?

A. The rate of inflation has to remain constant

B. Inflation expectations do not change

C. The expected rate of inflation has to change

D. Thechange in the expected rate of inflation must equal the change in the nominalinterest rate

Question 6

In the U.S., most of the recessions are the result of:

A. Ill-timed fiscal policy

B. Decreasing net exports

C. Decreases in investment

D. Large decreases in consumption

Question 7

If an economy is initially at a state of long-run equilibrium, theshort-run effect(s) from a decrease in aggregate demand will include:

A. An expansionary gap

B. A higher rate of inflation

C. A higher level of potential output

D. A recessionary gap

Question 8

In practice, it is difficult to keep inflation and output fromfluctuating when aggregate expenditures change because:

A. It takes time for policymakers to recognize that shifts have occurred

B. Changes in interest rates do not have an immediate impact on the economy

C. Changes in consumer or business confidence can be very difficult torecognize as they are occurring

D. All of the answers given are correct

Question 9

During the Great Moderation experienced in the United States during the1990s the volatility of inflation and growth:

A. Moved in opposite directions

B. Both dropped significantly

C. Both increased but only slightly.

D. Disappeared.

Question 10

Given a firm's liabilities, an increase in interest rates reduces thefirm's net worth because:

A. Profits will be lower due to higher interest costs

B. Asset values will increase

C. The principal amount of the loans will increase

D. All of the answers given are correct