Question 1

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.

Accepted Answer

Large or persistent inflation is almost always caused by excessive growth in the quantity of money. When a government or central bank prints too much money or increases the money supply, it can lead to an increase in demand for goods and services, which in turn drives up prices. This is known as demand-pull inflation.

Question 2

During the early 1920s in Germany, prices
A)doubled annually.
B)doubled monthly.
C)tripled monthly.
D)tripled annually.

Accepted Answer

The answer of During the early 1920s in Germany, prices
A)doubled...

Question 3

President Gerald Ford referred to inflation as
A)a blight on our nation's economy.
B)a necessary evil to combat high unemployment.
C)public enemy number one.
D)a fly in the ointment.

Accepted Answer

President Ford famously referred to inflation as "public enemy number one" in a speech he made to Congress in 1974. He believed that inflation was the biggest threat to the overall health and stability of the American economy at that time.

Question 4

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.

Accepted Answer

The Federal Reserve typically lowers interest rates in order to stimulate the economy by encouraging people to borrow and spend more money, which leads to increased business activity and, ultimately, more jobs. This policy is usually implemented when the economy is facing high levels of unemployment or sluggish growth.

Question 5

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.

Accepted Answer

Decreasing the money supply through a key interest rate change is a standard tool that the Federal Reserve uses to combat inflation. When the money supply is decreased, it becomes more expensive for businesses and consumers to borrow and spend money, which can decrease the amount of money available to chase the same amount of goods and services, ultimately lowering inflation.

Question 6

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."

Accepted Answer

The answer of In the 1990s, inflation in the United...

Question 7

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.

Accepted Answer

The answer of Most economists believe that an increase in...

Question 8

One of the 20th century's worst episodes of inflation occurred in
A)the United States in the 1960s.
B)Italy in the 1950s.
C)Russia in the 1930s.
D)Germany in the 1920s.

Accepted Answer

Germany suffered from hyperinflation in the 1920s, where prices doubled every few days and people had to carry wheelbarrows of money to buy basic necessities. This was due to a combination of war reparations, a huge increase in the money supply, and political instability.

Question 9

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

Accepted Answer

The answer of In the short run, which of the...

Question 10

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

Accepted Answer

The answer of In the short run, which of the...

Question 11

Inflation is defined as
A)a period of rising productivity in the economy.
B)a period of rising income in the economy.
C)an increase in the overall level of output in the economy.
D)an increase in the overall level of prices in the economy.

Accepted Answer

Inflation is an increase in the overall level of prices in the economy. It means that the purchasing power of money decreases as prices increase, leading to a reduction in the value of money over time.

Question 12

Incomes of U.S. households in the 1970s and 1980s
A)grew rapidly, due to the widespread success of labor unions in pushing up wages during those decades.
B)grew rapidly, due to several increases in the minimum wage during those decades.
C)grew rapidly, due to government policies that discouraged the importation of foreign products during those decades.
D)grew slowly, due to slow growth of the output of goods and services per hour of U.S. workers' time during those decades.

Accepted Answer

The correct answer is D because during the 1970s and 1980s, there was slow growth of output of goods and services per hour of U.S. workers' time, which led to slow growth in incomes of U.S. households. This was due to factors such as declining productivity growth, competition from foreign firms, and technological changes that required significant investments in capital equipment. There were no widespread increases in minimum wage during those decades, and government policies did not discourage importation of foreign products. While labor unions did have some success in pushing up wages, this was not enough to counteract the other factors that led to slow income growth during this period.

Question 13

In the early 1920s,
A)Germany experienced a very high rate of inflation.
B)the quantity of German money was declining rapidly.
C)the value of German money remained almost constant.
D)All of the above are correct.

Accepted Answer

In the early 1920s, Germany experienced a very high rate of inflation, with prices increasing rapidly and the value of German money rapidly declining.

Question 14

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.

Accepted Answer

In the short run, an increase in the money supply leads to lower interest rates, which encourages firms to invest and hire more workers. This leads to lower unemployment. However, with more money in circulation, consumers have more purchasing power, leading to higher demand and higher prices (inflation). So, both unemployment and inflation will decrease in the short run.

Question 15

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

Accepted Answer

A permanent increase in the growth rate of the money supply would lead to a permanent increase in inflation, as there would be more money in the economy without a corresponding increase in goods and services, leading to a decrease in the value of money. It would not necessarily have a direct impact on unemployment.

Question 16

The U.S. president who referred to inflation as "public enemy number one" was
A)Richard Nixon.
B)Gerald Ford.
C)Jimmy Carter.
D)Ronald Reagan.

Accepted Answer

The answer of The U.S. president who referred to inflation...

Question 17

In less than two years in the early 1920s, the cost of a German newspaper rose from 0.30 marks to 70,000,000 marks. This is a spectacular example of
A)market power caused by a change in the country's standard of living.
B)market power caused by a single firm controlling the newspaper production.
C)inflation caused by increased productivity in the economy.
D)inflation caused by an increase in the quantity of money in the economy.

Accepted Answer

The rapid increase in the cost of the German newspaper from 0.30 marks to 70,000,000 marks in less than two years is a result of hyperinflation caused by an increase in the quantity of money in the economy. The German government printed money to finance its war efforts, causing an oversupply of money, which led to rising prices of goods and services. As a result, the value of the German mark plummeted, and prices skyrocketed, leading to hyperinflation.

Question 18

An increase in the overall level of prices in an economy is referred to as
A)the income effect.
B)inflation.
C)deflation.
D)the substitution effect.

Accepted Answer

Inflation refers to an increase in the overall level of prices in an economy, which means that the prices of goods and services are rising and the purchasing power of money is decreasing. The income effect and the substitution effect are related to changes in the relative prices of goods, while deflation refers to a decrease in the overall level of prices.

Question 19

In which of the following decades was there both high inflation and rapid money supply growth in the US?
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

Accepted Answer

In the 1970's, the US experienced both high inflation and rapid money supply growth, known as "stagflation." However, in the 1990's, inflation was relatively low and stable while money supply growth was also moderate.

Question 20

In the United States, the overall level of prices more than doubled during the
A)1950s.
B)1960s.
C)1970s.
D)1980s.

Accepted Answer

This period is known as the "Great Inflation" and saw a rapid rise in prices due to factors such as the Vietnam War, oil price shocks, and expansionary monetary policy. The overall level of prices increased by over 120% during the 1970s.

Quiz 1: Ten Principles of Economics

Large or persistent inflation is almost always caused by

During the early 1920s in Germany, prices

President Gerald Ford referred to inflation as

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

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

In the 1990s, inflation in the United States was

Most economists believe that an increase in the quantity of money results in

One of the 20th century's worst episodes of inflation occurred in

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?

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?

Inflation is defined as

Incomes of U.S. households in the 1970s and 1980s

In the early 1920s,

In the short run, an increase in the money supply is likely to lead to

Which of the following would a permanent increase in the growth rate of the money supply change permanently?

The U.S. president who referred to inflation as "public enemy number one" was

In less than two years in the early 1920s, the cost of a German newspaper rose from 0.30 marks to 70,000,000 marks. This is a spectacular example of

An increase in the overall level of prices in an economy is referred to as

In which of the following decades was there both high inflation and rapid money supply growth in the US?

In the United States, the overall level of prices more than doubled during the