-Hyperinflations occur when the government runs a large budget ________, which the central bank finances with a substantial monetary ________.
a. deficit, contraction
b. deficit, expansion
c. surplus, contraction
d. surplus, expansion
-According to the quantity theory of money and the Fisher effect, if the central bank increases the rate of money growth,
a. inflation and the nominal interest rate both increase.
b. inflation and the real interest rate both increase.
c. the nominal interest rate and the real interest rate both increase.
d. inflation, the real interest rate, and the nominal interest rate all increase.
- If an economy always has inflation of 10 percent per year, which of the following costs of inflation will it NOT suffer?
a. Shoe leather costs from reduced holdings of money.
b. Menu costs from more frequent price adjustment.
c. Distortions from the taxation of nominal capital gains.
d. Arbitrary redistributions between debtors and creditors.