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1. In order to maintain stable prices, a central bank must
a.
maintain low interest rates.
b.
keep unemployment low.
c.
tightly control the money supply.
d.
sell indexed bonds.
2. Which of the following is accurate?
a.
Monetary policy is neutral in both the short run and the long run.
b.
Though monetary policy is neutral in the long run, it may have effects on real variables in the short run.
c.
Monetary policy has profound effects on real variables in both the short run and the long run.
d.
Monetary policy has profound effects on real variables in the long run, but is neutral in the short run.
3. The primary cause of inflation is
a.
growth in the quantity of money.
b.
variability in relative prices.
c.
inter-bank lending.
d.
reduced velocity of money.
4. The costs of inflation are
a.
shoeleather costs and menu costs.
b.
arbitrary redistributions of wealth.
c.
increased variability of relative prices.
d.
All of the above.
5. Inflation costs are minimized during periods of
a.
hyperinflation.
b.
large, unexpected deflation.
c.
moderate inflation.
d.
rapid money growth.
6. Inflation costs are minimized under which inflation rate?
a.
-20 percent
b.
5 percent
c.
15 percent
d.
575 percent
