Economics Quiz

Shoeleather costs arise when higher inflation rates induce people to

• spend more time looking for bargains.

• spend less time looking for bargains.

• hold more money.

• hold less money.

The federal funds rate is the

• percentage of face value that the Federal Reserve is willing to pay for Treasury Securities.

• percentage of deposits that banks must hold as reserves.

• interest rate at which the Federal Reserve makes short-term loans to banks.

• interest rate at which banks lend reserves to each other overnight.

Refer to Figure 31-2. If the relevant money-demand curve is the one labeled MD₁, then the equilibrium value of money is

• 0.3 and the equilibrium price level is 3.3.

• 3.3 and the equilibrium price level is 0.3.

• 0.3 and the equilibrium price level cannot be determined from the graph.

• 3.3 and the equilibrium price level cannot be determined from the graph.

Most economists believe the principle of monetary neutrality is

• relevant to both the short and long run.

• irrelevant to both the short and long run.

• mostly relevant to the short run.

• mostly relevant to the long run.

To explain the long-run determinants of the price level and the inflation rate, most economists today rely on the

• quantity theory of money.

• price-index theory of money.

• theory of hyperinflation.

• disequilibrium theory of money and inflation.

The costs of changing price tags and price listings are known as

• inflation-induced tax distortions.

• relative-price variability costs.

• shoeleather costs.

• menu costs.

Inflation can be measured by the

• change in the consumer price index.

• change in money demand.

• percentage change in the consumer price index.

• change in the money supply.

The nominal interest rate is 9 percent and the real interest rate is 6 percent. What is the inflation rate?

• 15 percent

• 3 percent

• 0.3 percent

• –6 percent

Which of the following is consistent with the idea that high money supply growth leads to high inflation?

• The quantity theory and data from classic hyperinflations that occurred during the 1920s in Austria, Hungary, Germany, and Poland.

• The quantity theory but not evidence from classic hyperinflations that occurred during the 1920s in Austria, Hungary, Germany, and Poland.

• Evidence from classic hyperinflations that occurred during the 1920s in Austria, Hungary, Germany, and Poland but not the quantity theory.

• Neither the quantity theory nor evidence from classic hyperinflations that occurred during the 1920s in Austria, Hungary, Germany, and Poland.

If Y and V are constant and M doubles, the quantity equation implies that the price level

• more than doubles.

• changes but less than doubles.

• doubles.