Question

1. According to the classical dichotomy, when the money supply decreases, ______ will decrease.

a. real GDP

b. consumption spending

c. the price level

d. investment spending

2. In Zimbabwe in the 1990s the government resorted to printing money to pay the government employees because:

a. it was a means to avoid price controls.

b. of high rates of inflation.

c. of declining tax revenues.

D of a need to stimulate the economy.

3. To end a hyperinflation, a government trying to reduce its reliance on seigniorage would:

a. print more money.

b. raise taxes and cut spending.

c. lower taxes and increase spending.

d. lower interest rates.

4. The inconvenience associated with reducing money holdings to avoid the inflation tax is called:

a. menu costs.

b. shoeleather costs.

c. variable yardstick costs.

d. fixed costs.

5. Devoting resources to avoiding the costs of expected inflation leads to:

a. eliminating the costs of expected inflation.

b. fewer relative price changes.

c. economic inefficiency.

d. a decrease in the transaction velocity of money.

Answer 1

1) the price level

option(C)

2) of declining tax revenues

option(C)

3) raise taxes and cut spending

option(B)

4) shoe-leather costs

option(B)

5)  economic inefficiency.

option(C)