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Monetary policy

Markets

Money

Europe
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Monetary Policy - Inflation - Causes

Quiz 1 - Inflation - what is being inflated and why?

1. What are the main types of inflation?
(Select one or more answers)

(a) * demand-pull
(b) * supply drag
(c) * producer price feed
(d) * cost-push

       

2. Which of the following is the Fisher Equation of Exchange?
(Select one answer)

(a) * MT=PV
(b) * VT=PM
(c) * MV=PT
(d) * MY=VP

   

3. Which of the four elements of the Fisher Equation do classical economists assume to be relatively stable?
(Select one or more answers)

(a) * M
(b) * T
(c) * V
(d) * P

       

4. Identify each of the following phrases as true or false.
(Type your answer in lower case)

true - false
5. In the diagram below, assume that the economy starts at an equilibrium level of income of Y* (the intersection of AD1 and AS1). For each of the changes given identify the most likely level of income for the economy after the change.
Changes to the equilibrium level of income
  • The MPC cuts the interest rate at its monthly meeting.
    (Select one answer)

(a) * Y1
(b) * Y2
(c) * Y3
(d) * Y4

       

  • Stronger trade unions manage to force through higher pay rises for their members.
    (Select one answer)

(a) * Y1
(b) * Y2
(c) * Y3
(d) * Y4

       

  • Improvements in education and training help boost the capacity of the economy.
    (Select one answer)

(a) * Y1
(b) * Y2
(c) * Y3
(d) * Y4

       

  • Concerns over the future lead to a loss of confidence among businesses.
    (Select one answer)

(a) * Y1
(b) * Y2
(c) * Y3
(d) * Y4

       

  • High levels of public borrowing force the government to trim its expenditure plans.
    (Select one answer)

(a) * Y1
(b) * Y2
(c) * Y3
(d) * Y4

       

  • Tensions in the Middle East push up the oil price.
    (Select one answer)

(a) * Y1
(b) * Y2
(c) * Y3
(d) * Y4

       

6. Calculate the missing figures in each of the examples of the Fisher Equation of Exchange given below:
(Type your answer)


7. Identify each of the following as either cost-push inflation or demand-pull inflation.

  • A depreciation in the exchange rate pushes up raw material prices and therefore causes inflation.
    (Select one answer)

(a) * cost-push
(b) * demand-pull

   

  • The impact of Budget tax cuts is to cause inflation.
    (Select one answer)

(a) * cost-push
(b) * demand-pull

   

  • Trade unions manage to get wage increases for their members that are well above the rate of inflation.
    (Select one answer)

(a) * cost-push
(b) * demand-pull

   

  • A boom in the stock market pushes up share prices and this ultimately has the effect of causing inflation.
    (Select one answer)

(a) * cost-push
(b) * demand-pull

   

  • Rising confidence in the economy boosts retail sales and has the effect of causing inflation.
    (Select one answer)

(a) * cost-push
(b) * demand-pull

   

8. The diagram below shows the 'Expectations-Augmented Phillips Curve' that was developed by Milton Friedman. Answer the following questions by selecting the appropriate the point in the diagram.
Expectations-Augmented Phillips Curve
  • Which point shows the Natural Rate of Unemployment if people's price expectations are zero?
    (Select one answer)

(a) * U
(b) * V
(c) * W
(d) * X
(e) * Y

       

  • Which point shows the point the economy will settle at in the long-run if people expect a rate of inflation of 5%?
    (Select one answer)

(a) * U
(b) * V
(c) * W
(d) * X
(e) * Y

       

  • Which point shows the impact of the government attempting to reduce the level of unemployment, assuming the economy started at point U?
    (Select one answer)

(a) * U
(b) * V
(c) * W
(d) * X
(e) * Y

       

  • If price expectations are 5% and unemployment is at the natural rate, which point will the economy move to if the government put in place a significantly reflationary package?
    (Select one answer)

(a) * U
(b) * V
(c) * W
(d) * X
(e) * Y