Chapter 12 Unemployment and Inflation

| November 9, 2018

4)
The costs of inflation that arise from trying to reduce cash holdings are known
as
A)
shoe leather costs.
B)
menu costs.
C)
chain-index costs.
D)
diminishing costs.

5)
What happens to your purchasing power if inflation is less than you
anticipated?
A)
It decreases.
B)
It increases.
C)
It devalues your net worth.
D)
It won’t change much.

6)
If you negotiated a salary based on an anticipated inflation rate of 4%, and
the actual inflation rate turned out to be 6%
A)
the purchasing power of your real wages would be more than you anticipated.
B)
your employer would have gained at your expense.
C)
your real wage will increase, but your nominal wage will decrease.
D)
the purchasing power of your wages will not change, since purchasing power is
based on your nominal wage.

7)
If you take out a bank loan prior to unanticipated inflation
A)
it will be harder for you to repay the loan because of the inflated dollar.
B)
you will gain at the expense of your bank.
C)
your bank will gain at your expense.
D)
neither you nor your bank will be affected, because the loan was made prior to
the inflation.

8)
One cost of unanticipated inflation is
A) both lenders and borrowers lose.
B)
arbitrary redistributions of income.
C)
nominal income falls below real income.
D)
people cannot repay their debts.

9)
In November 2008, the MONTHLY rate of inflation in Zimbabwe approached 79
BILLION%. An inflation rate such as this would
A)
seriously disrupt normal commerce.
B)
decrease the natural rate of unemployment.
C)
be too high to calculate using the CPI.
D)
all of the above

10)
An inflation rate that exceeds 50% per month is referred to as
A)
anticipated inflation.
B)
destructive deflation.
C)
hyperinflation.
D)
superflation.

11)
Hyperinflation is defined as an inflation rate
A)
that doubles each year.
B)
that exceeds 50% per month.
C)
that increases rapidly in one year and decreases rapidly the next year.
D)
that is moderately high but anticipated.

12)
Anticipated inflation is associated with cost increases which are fully
expected.

13)
Unanticipated inflation is associated with cost increases which are not
expected.

14)
Inflation distorts the operation of our tax and financial system.

15)
Hyperinflation refers to an inflation rate which exceeds 5% per month.

16)
Unemployment and recessions are sometimes necessary to curb high inflation.

17)
Explain menu costs and shoe leather costs as they relate to inflation.

18)
What is hyperinflation?

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