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a.
the 1970’s and the 1990’s
b.
the 1970’s but not the 1990’s
c.
the 1990’s but not the 1970’s
d.
neither the 1970’s nor the 1990’s
43. In the 1990s, inflation in the United States was
a.
very close to zero.
b.
about 3 percent per year.
c.
about 6 percent per year.
d.
commonly referred to as “public enemy number one.”
44. Large or persistent inflation is almost always caused by
a.
excessive government spending.
b.
excessive growth in the quantity of money.
c.
foreign competition.
d.
higher-than-normal levels of productivity.
45. Which of the following would a permanent increase in the growth rate of the money supply change permanently?
a.
inflation
b.
unemployment
c.
both inflation and unemployment
d.
neither inflation nor unemployment
46. Most economists believe that an increase in the quantity of money results in
a.
an increase in the demand for goods and services.
b.
lower unemployment in the short run.
c.
higher inflation in the long run.
d.
All of the above are correct.
47. In the short run, which of the following rates of growth in the money supply is likely to lead to the lowest level of
unemployment in the economy?
a.
3 percent per year
b.
5 percent per year
c.
7 percent per year
d.
9 percent per year
48. In the short run, which of the following rates of growth in the money supply is likely to lead to the highest level of
unemployment in the economy?
a.
1 percent per year
b.
2 percent per year
c.
3 percent per year
d.
4 percent per year
49. In the short run, an increase in the money supply is likely to lead to
a.
lower unemployment and lower inflation.
b.
lower unemployment and higher inflation.
c.
higher unemployment and lower inflation.
d.
higher unemployment and higher inflation.
50. Suppose the Federal Reserve announces that it will be making a change to a key interest rate to increase the money
supply. This is likely because
a.
the Federal Reserve is worried about inflation.
b.
the Federal Reserve is worried about unemployment.
c.
the Federal Reserve is hoping to reduce the demand for goods and services.
d.
the Federal Reserve is worried that the economy is growing too quickly.
51. Suppose the Federal Reserve announces that it will be making a change to a key interest rate to decrease the money
supply. This is likely because the Federal Reserve is
a.
worried about inflation.
b.
worried about unemployment.
c.
hoping to increase the demand for goods and services.
d.
worried that the economy is growing too slowly.
52. Low rates of inflation are generally associated with
a.
low rates of government spending.
b.
small or nonexistent government budget deficits.
c.
low rates of productivity growth.
d.
low rates of growth of the quantity of money.
53. Which of the following is the primary cause of inflation?
a.
an increase in the quantity of money
b.
an increase in government spending
c.
an increase in unemployment
d.
an increase in productivity
54. Which of the following is the most correct statement about the relationship between inflation and unemployment?
a.
In the short run, falling inflation is associated with falling unemployment.
b.
In the short run, falling inflation is associated with rising unemployment.
c.
In the long run, falling inflation is associated with falling unemployment.
d.
In the long run, falling inflation is associated with rising unemployment.
55. Which of the following is an important cause of inflation in an economy?
a.
increases in productivity in the economy
b.
the influence of positive externalities on the economy
c.
lack of property rights in the economy
d.
growth in the quantity of money in the economy
56. The mainstream view among economists is that
a.
society faces a tradeoff between unemployment and inflation, but only in the short run.
b.
society faces a tradeoff between unemployment and inflation, but only in the long run.
c.
society faces a tradeoff between unemployment and inflation, both in the short run and in the long run.
d.
no tradeoff exists between unemployment and inflation, either in the short run or in the long run.
57. Which of the following claims is consistent with the views of mainstream economists?
a.
If we increase the rate of inflation from 3 percent to 6 percent, then the rate of unemployment will temporarily
fall.
b.
If we increase the rate of inflation from 3 percent to 6 percent, then the rate of unemployment will temporarily
rise.
c.
If we increase the rate of inflation from 3 percent to 6 percent, then the rate of unemployment will
permanently fall.
d.
If we increase the rate of inflation from 3 percent to 6 percent, then the rate of unemployment will
permanently rise.
58. For a very long time the country of Zeeland has had an inflation rate of 9%. Suddenly its inflation rate drops to 3%.
The drop in the inflation rate
a.
could be due to slower money supply growth. We would expect unemployment to be higher.
b.
could be due to slower money supply growth. We would expect unemployment to be lower.
c.
could be due to higher money supply growth. We would expect unemployment to be higher.
d.
could be due to higher money supply growth. We would expect unemployment to be lower.
59. For a number of years country A had inflation of 3% but for the last five years has had inflation of 6%. Country B had
inflation of 4% for many years, but very recently inflation unexpectedly rose to 9%. Other things the same, in which of
the countries would the higher inflation rate be more likely to reduce unemployment?
a.
both country A and country B
b.
neither country A nor country B
c.
country A but not country B
d.
country B but not country A
60. In the early 1980s, U.S. economic policy was directed toward reducing inflation. What would you have expected to
observe during this short period of time?
a.
Inflation fell and unemployment fell.
b.
Inflation and unemployment were both unaffected.
c.
Inflation fell and unemployment increased.
d.
Inflation fell and unemployment was unchanged.
61. The relatively low inflation experienced in the United States in the 1990s is attributable to
a.
slow growth of U.S. productivity during the 1990s.
b.
slow growth of the quantity of money in the U.S. in the 1990s.
c.
low levels of government spending in the U.S. in the 1980s and 1990s.
d.
the eight-year presidency of William Jefferson Clinton during the 1990s.
62. During the 1990s, the United Kingdom experienced low levels of inflation while Turkey experienced high levels of
inflation. A likely explanation of these facts is that
a.
the United Kingdom has a better education system than Turkey.
b.
the rate of growth of the quantity of money was slower in the United Kingdom than in Turkey.
c.
workers in Turkey are more productive than workers in the United Kingdom.
d.
there are more instances of market power in Turkey than in the United Kingdom.
63. The tradeoff between inflation and unemployment
a.
implies that policies designed to reduce unemployment also reduce inflation.
b.
was eliminated by improved economic policies in the 1900s.
c.
is a long-run tradeoff, persisting for decades, according to most economists.
d.
None of the above are correct.
64. Germany could have avoided the high inflation that it experienced in the 1920s by
a.
not directing so many of its resources toward preparation for World War II.
b.
not increasing taxes so much on the German middle class.
c.
not allowing the quantity of money to increase so rapidly.
d.
using government policies to stimulate the economy more so than what was done.
65. In the short run, which of the following is not correct?
a.
Increasing the money supply increases the demand for goods and services.
b.
Increasing the money supply encourages firms to hire more workers.
c.
Lowering the money supply leads to a higher level of unemployment.
d.
Policies that encourage higher employment will also induce a lower rate of inflation.
66. In response to the deep economic downturn in the US in 2008 and 2009, the US
a.
reduced taxes.
b.
increased government spending.
c.
increased the supply of money.
d.
All of the above are correct.
67. The combination of President Obama’s strategies and the Federal Reserve’s reaction to the deep economic downturn
in the US in 2008 and 2009
a.
was intended to reduce unemployment.
b.
may lead to excessive inflation over time.
c.
resulted in higher taxes and an increased supply of money.
d.
Both a and b are correct.
68. The short-run tradeoff between inflation and unemployment implies that, in the short run,
a.
a decrease in the growth rate of the quantity of money will be accompanied by an increase in the
unemployment rate.
b.
an increase in the growth rate of the quantity of money will be accompanied by an increase in the
unemployment rate.
c.
policymakers are able to reduce the inflation rate and, at the same time, reduce the unemployment rate.
d.
policymakers can influence the inflation rate, but not the unemployment rate.
69. The irregular and largely unpredictable fluctuations in economic activity are called
a.
market failure.
b.
business cycle.
c.
inflation.
d.
unemployment.
70. The business cycle is the
a.
relationship between unemployment and inflation.
b.
irregular fluctuations in economic activity.
c.
positive relationship between the quantity of money in an economy and inflation.
d.
predictable changes in economic activity due to changes in government spending and taxes.
71. The business cycle is measured by the
a.
production of goods and services.
b.
number of people employed.
c.
the interest rate.
d.
Both a and b are correct.
72. Both the production of goods and services and the unemployment rate are used to measure
a.
the business cycle.
b.
productivity.
c.
the interest rate.
d.
inflation.
73. It once took 90 percent of our population to grow our food. It now takes only 3 percent of the population to grow our
food. Which of the following statements is true?
a.
This loss of jobs has been detrimental to our economy.
b.
The government should provide subsidies to encourage more people to become farmers.
c.
The reduction in the number of farmers explains the increase in the price of food.
d.
This is progress because freed-up labor is used to produce other goods.
74. In a particular country in 2008, the average worker had to work 40 hours to produce 100 units of output. In that same
country in 2018, the average worker needed to work 35 hours to produce 94.5 units of output. In that country, the
productivity of the average worker
a.
increased by 2 percent between 2008 and 2018.
b.
increased by 8 percent between 2008 and 2018.
c.
remained unchanged between 2008 and 2018.
d.
decreased by 2 percent between 2008 and 2018.
75. Which of the following rates of growth in the money supply is likely to lead to the lowest level of inflation in the
economy?
a.
1 percent per year
b.
3 percent per year
c.
5 percent per year
d.
7 percent per year
76. Which of the following rates of growth in the money supply is likely to lead to the highest level of inflation in the
economy?
a.
1 percent per year
b.
2 percent per year
c.
3 percent per year
d.
4 percent per year
