question
A real price is:
answer
a price that has been corrected for inflation.
question
When people suffer from money illusion, an increase in the money supply:
answer
raises real GDP in the short run.
question
The "inflation parable" in the text refers to the fact that an unexpected change in the money supply affects:
answer
real GDP only in the short run.
question
If the average price level rises from 120 in year 1 to 130 in year 2, the inflation rate between years 1 and 2 will be:
answer
8.33%
question
If the nominal interest rate is 8% while the inflation rate is 10%, then the real rate of return for lenders is:
answer
-2%
question
In the long run, an increase in the money supply will cause real GDP to:
answer
remain constant.
question
Inflation hurts the economy because:
answer
it affects the ability of market prices to send signals about the value of resources.
question
An assumption of the quantity theory of money is that real GDP growth:
answer
remains relatively constant.
question
Inflation is painful to stop because stopping it:
answer
requires decreasing the growth rate of the money supply, which typically leads to lower growth overall.
question
In times when prices rise unexpectedly:
answer
borrowers are made better off at the expense of lenders.
question
Money illusion is:
answer
mistaking changes in nominal prices for changes in real prices.
question
If the velocity of money and real GDP are fixed, then the quantity theory of money implies that the price level will:
answer
increase at the same rate as the growth in the money supply.
question
Negative real rates of interest tend to:
answer
reduce economic growth.
question
According to Nobel laureate Milton Friedman, "inflation is _____."
answer
always and everywhere a monetary phenomenon
question
Inflation is:
answer
an increase in the average level of prices.
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