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Money, Banking, and Financial Markets Practice Test: Money and Inflation
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Inflation is the rate at which the average price of goods and services increases over time. It can occur when the money supply grows faster than the economic output.  Here are some causes of inflation: demand-pull, cost-push, and inflation expectations.  Inflation can be measured by comparing the value of a price index over one period to another. The price index is a basket of various goods and services consumed by households.  Inflation can reduce the value of your money over time. As inflation rises, each dollar buys a lower quantity of goods. This means that the money you have at the... Show more
Money, Banking, and Financial Markets Practice Test: Money and Inflation
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25 Questions

1. The time it takes for a policy to have an impact on the economy, once it has been implemented, is called the
2. Moderate deficits, such as those experienced by the United States in the last decade, present an inflationary problem if
3. The condition of a continually rising price level is defined as
4. The financing of government spending by issuing debt
5. The time that it takes for an discrectionary policy to actually influence economic activity is called the
6. If the Fed responds by increasing the money supply in response to a successful wage push by workers, monetary policy is said to be
7. Advocates of discrectionary policy usually view ________ policy as having a shorter effectiveness lag than ________ policy, but there is substantial uncertainty about how long this lag is.
8. The ________ lag is the time it takes for policymakers to be sure of what the data are signaling about the future course of the economy, while the ________ lag represents the time it takes to pass legislation to implement a particular (fiscal) policy.
9. Aggregate demand and supply analysis conclude that continuously growing ________ will cause the price level to rise continually, thus generating inflation.
10. Economists usually view ________ policy as having a shorter implementation lag than ________ policy, but there is substantial uncertainty about how long this lag is.
11. If workers do not believe that policymakers are serious about fighting inflation, they are most likely to push for higher wages, which will ________ aggregate ________ and lead to unemployment or inflation or both, everything else held constant.
12. According to aggregate demand and supply analysis, an increase in government spending will cause aggregate demand to ________, causing output to ________ , everything else held constant.
13. The ________ lag is the time it takes for policymakers to obtain the information that tells them what is happening to the economy, while the ________ lag represents the time it takes to implement a particular fiscal policy.
14. According to aggregate demand and supply analysis and with everything else held constant, a continuous increase in the money supply causes
15. The combination of a successful wage push by workers and the governmentʹs commitment to high employment leads to
16. 'How do we prevent the inflationary fire from igniting again and stop the roller coaster ride in the inflation rate of the last 40 years?' - Milton Friedmanʹs famous proposition suggests the simple solution:
17. If an economist were interested in testing whether government budget deficits had been the cause of excessive monetary growth for a country for the period 1950-2000, she would examine the behavior of
18. The Zimbabwean hyperinflation of 2008 supports the proposition that excessive monetary growth causes inflation and not the other way around since the increase in monetary growth appears to have been
19. Methods of financing government spending are described by an expression called the government budget constraint, which states the following:
20. If the Fed pursues a policy goal of
21. The ________ lag is the time it takes for policymakers to be sure of what the information is signaling about the future course of the economy, while the ________ lag is the time it takes for policymakers to change policy instruments once they have decided on the new policy.
22. Advocates of nondiscrectionary policy emphasize the importance of a constant money growth rate rule more than the balanced-budget amendment or restrictions on union power because
23. If moderate deficits put ________ pressure on interest rates, the Fed may ________ bonds, leading to an increase in high-powered money.
24. If expectations about policy affect how wages are set, then the case for a(n) ________ policy is much stronger.
25. Proponents of Ricardian Equivalence reject the view that deficits

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