Just need #8-14 and 16!
ECON 2120 PS #5 Summer 2019 This assignment has 17 multiple choice questions on pages 1-3. The majority of the problems pull from slide deck 7. Please answer all questions and submit as part of your weekly file. To be clear, ALL weekly problem set materials should be in ONE file for grading. 1. The percentage increase in a price index from one year to the next is the: A) change in real GDP. B) GDP inflator. C) rate of inflation. D) All of the answers are correct E) None of the answers is correct. 2. This table shows actual inflation data for different periods of time, likely not in the US. Which year can you identify as experiencing deflation? A) 2013 B) 2014 C) 2015 D) 2016 E) 2017 3. This table shows actual inflation data for different periods of time. Which year can you identify as experiencing disinflation? A) 2013 B) 2014 C) 2015 D) 2016 E) 2017 4. According to the quantity theory of money, which of the following would cause the price level to increase? A) The population spends holds on to their money. B) The population spends money faster. C) The population becomes more productive. D) Investment spending decreases. E) The unemployment rate goes down. 5. Suppose in the United States economy, the rate of money growth for the current year is 8 percent, the velocity of money in circulation is constant, and inflation is expected to be about 2 percent over the current year. What is the short run economic growth rate? A) 16 percent B) 10 percent C) 8 percent D) 6 percent E) 4 percent 6. When the growth rate of velocity and growth rate of real GDP are held constant, increases in the money supply: A) result in lower velocity. B) are impossible because the money supply must also be fixed. C) must cause decreases in the price level. D) must cause increases in the price level. E) None of the above. 7. The velocity of money is: A) the average number of times a dollar is spent on final goods and services in a year. B) a price that has been corrected for inflation. C) when people mistake changes in nominal prices for changes in real prices. D) an increase in the average level of prices. E) All of the above. 8. The fisher effect matters in terms of inflation given that A) borrowers agree to loan terms with uncertain information about future inflation B) lenders set nominal interest rates with a forecast for future inflation, which may or may not be correct. C) redistribution can take place when unexpected changes to inflation occurs. D) A&B only E) All of the above 9. If your real wages are decreasing although you have received salary raises each year, A) you should quit your job B) your purchasing power is decreasing C) the rate of inflation is likely decreasing D) your nominal wages are rising faster than inflation E) none of the above A generalization of the fisher effect that can be applied to other variables is the relationship between real price growth and nominal price growth if we know the inflation rate. We can express this relationship as , where g is the growth rate (real or nominal) and is inflation rate. Use this information for problems 10-12. 10. Assume that data shows the nominal price of a new Nissan Maxima was $12,000 in 1992 and $15,000 in 2002, but you also found a reliable source that claimed real price growth for Maximas was closer to 8.5%. For this claim about real price growth to be true, how much inflation was experienced from 1992 to 2002? A) 16.5% B) 5% C) 10% D) 8.5% E) Not enough information to determine 11. Assume that the inflation rate is the level you found in 10. If the real price growth for a Mercedes-AMG was 10%, and the nominal price in 1992 was $42,000; what is the nominal price of the Mercedes in 2002? A) $50,000 B) $53,130 C) $56,750 D) $60,070 E) $77,000 12. For which car did the nominal price grow faster from 1992 to 2002? A) The Maxima B) The Mercedes C) Same nominal price growth 13. In the quantity theory equation (in terms of growth rates), we have , where is the inflation rate, is the growth rate of money supply, is the growth rate of money velocity, and is the growth rate of GDP. What is one implication of increasing money supply growth from 3% to 5% if economic growth is generally constant at 3%, and velocity is constant at 5%? A) Inflation will decrease from 7% to 5% B) Inflation will decrease from 6% to 1% C) Inflation will rise from 3% to 5% D) Inflation will rise from 5% to 7% 14. Holding velocity growth and GDP growth constant is generally a long run concept. What is one conceptual takeaway if a central bank has plans to consistently increase money supply in the long run? A) There will be higher levels of economic growth B) This activity will likely only lead to higher inflation C) There will be higher levels of GDP D) This activity will lead to lower levels of inflation. 15. If I loan you $100,000 today at a 6% interest rate, it is likely that: A) I expect inflation to be greater than 6% B) I expect inflation to be less than 6% C) I want a real return that beats inflation. D) B&C E) None of the above 16. The Consumer Price Index (CPI) A) Is commonly used to determine changes in purchasing power for the average citizen. B) Will be lower than 100 if prices have risen since the base year. C) Can only range from 0 to 100 for all years of prices. D) is the only price index available to adjust or inflation. 17. The money illusion refers to the tendency of A) everyday people to refer to wealth as money. B) money to be spent as soon as it is earned. C) everyday people to misinterpret nominal and price changes. D) money to disappear into thin air. E) corrupt governments to embezzle money.