Calculate the inflation rate

Question

Assignment:

1. If Pt is the price level in time t, the inflation rate is calculated as:

(a) 1/P_t

(b) 1/(P_t+1 P_t)

(c) (P_t+1/P_t) -1

(d) (P_t-P_t+1)/P_t+1

2. According to the quantity theory of money an increase in the velocity of money leads to:

(a) lower prices and higher output

(b) higher prices and higher output

(c) higher prices and unchanged output

(d) lower money supply and unchanged output

3. The Fisher equation is:

(a) 1 + i = (1 + r)(1 + π)

(b) 1 + r = (1 + i)(1 + π)

(c) 1 + i = (1 + r)(1 - π)

(d) 1 + r = (1 + i)(1- π)

4. The average annual ináation rate in Zimbabwe in 2008 was:

(a) Less than 10%
(b) Between 10% and 100%
(c) Between 100% and 1000%
(d) More than 1000%

5. Suppose the money supply grows at an annual rate of 5% while real GDP grows at an annual rate of 2%. According to the Quantity Theory the ináation should b

(a) 2%
(b) 3%
(c) 5%
(d) 7%

6. Suppose the velocity of money, V , is an increasing function of the ináation rate π, . According to the Quantity Equation an increase in the ináation rate _________ aggregate real balances (M/P) and _______ aggregate output.

(a) Reduces; Does not affect
(b) Raises; Raises
(c) Raises; Reduces
(d) Does not a§ect; Reduces

7. The IS curve is _______ sloping (in the space Y, R) and it shifts to the ______ as the marginal product of capital, r¯, increases.

(a) Upward; Right
(b) Upward; Left
(c) Downward; Right
(d) Downward; Left

8. Consider the IS model and suppose that the marginal propensity to consume out of transitory income is x¯ = 0:25. A one-dollar increase in government purchases leads to a _____ dollar increase in GDP.

(a) 0.25
(b) 1
(c) 1.25
(d) 1.33

9. Consider the IS model and suppose that the marginal propensity to consume out of transitory income is x¯ = 0:25. A one-dollar cut in taxes leads to a _____ dollar increase in GDP.

(a) 0
(b) 0.25
(c) 0.33
(d) 1.25

10. Consider the IS model and suppose that the marginal propensity to consume out of transitory income is x¯ = 0:25. A one-dollar increase in government purchases Önanced by a one-dollar increase in taxes leads to a _____ dollar increase in GDP.

(a) 0
(b) 0.33
(c) 1
(d) 1.25