Question : 24.2   Meaning of Inflation 1) A one-time increase in the price : 1373931

24.2   Meaning of Inflation

1) A one-time increase in the price level

A) is rarely reported by the news media as inflation, but is nevertheless considered to be inflation by economists.

B) is regularly reported by the news media as inflation, but is not considered to be inflation by economists.

C) is rarely reported by the news media as inflation because it is not considered to be inflation by economists.

D) is regularly reported by the news media as inflation because it is considered to be inflation by economists.

2) When inflation is defined to be a condition of a continually rising price level, ________ economists agree with Milton Friedman’s proposition that inflation is a monetary phenomenon.

A) no

B) very few

C) about half of practicing

D) almost all

24.3   Views of Inflation

1) According to aggregate demand and supply analysis, inflation is caused by

A) supply shocks.

B) expansionary fiscal policies.

C) expansionary monetary policies.

D) rising prices.

2) According to aggregate demand and supply analysis, a continually increasing money supply causes a ________ in aggregate demand, everything else held constant.

A) continual increase

B) continual decrease

C) one-time increase

D) one-time decrease

3) According to aggregate demand and supply analysis of inflation and with everything else held constant, a continually increasing money supply causes

A) aggregate demand to increase along a stationary aggregate supply curve, leading to continually increasing aggregate output and prices.

B) aggregate supply to decrease along a stationary aggregate demand curve, leading to continually contracting aggregate output and prices.

C) aggregate demand to increase continually as aggregate supply decreases continually, leading to higher and higher price levels.

D) aggregate demand to decrease continually as aggregate supply increases continually, leading to higher and higher price levels.

4) Aggregate demand and supply analysis conclude that continuously growing ________ will cause the price level to rise continually, thus generating inflation.

A) money supply

B) government spending

C) interest rates

D) consumer expenditure

5) According to aggregate demand and supply analysis and with everything else held constant, a continuous increase in the money supply causes

A) the price level to increase, but has no lasting effect on the inflation rate.

B) the price level to fall.

C) inflation.

D) output to increase, but leaves the price level and inflation unchanged.

6) According to aggregate demand and supply analysis, an increase in government spending will cause aggregate demand to ________, causing output to ________ , everything else held constant.

A) increase; fall

B) increase; rise

C) decrease; fall

D) decrease; rise

7) Aggregate demand and supply analysis indicates that negative supply shocks

A) decrease the price level, but cannot decrease the inflation rate.

B) increase the price level, but cannot increase the inflation rate.

C) increase both the price level and the inflation rate.

D) decrease both the price level and the inflation rate.

8) Suppose that the economy is at the natural rate of output.  In the absence of accommodating policy and everything else held constant, the net result of a negative supply shock is that

A) the economy returns to full employment at the initial price level.

B) the economy returns to full employment at a higher price level.

C) the economy returns to full employment at a lower price level.

D) aggregate output increases above the natural rate level, but only temporarily.

9) Explain and show graphically why continuous monetary growth is needed to generate inflation. Describe how the inflation process is generated.

10) Suppose that the economy is at the natural rate of output.  Explain how a positive supply shock, followed by a more restrictive monetary policy, allows policymakers a painless way to reduce inflation.