Chapter 29 — Quiz

Multiple choice

Q1. The quantity theory (MV=PY) predicts that sustained inflation requires: a) Rising taxes b) Sustained money supply growth exceeding output growth c) Falling output d) Rising velocity

Q2. Demand-pull inflation is caused by: a) Supply shocks b) Too much aggregate demand relative to production capacity c) Falling money supply d) Deflation

Q3. Cost-push inflation is caused by: a) Consumer optimism b) Rising input costs (oil, wages, supply disruptions) c) Tax cuts d) Low interest rates

Q4. Anchored inflation expectations mean: a) People expect high inflation b) People believe the central bank will maintain low inflation regardless of short-term shocks c) Expectations don't matter d) Inflation is always zero

Q5. The short-run Phillips curve shows: a) No relationship between inflation and unemployment b) An inverse trade-off between inflation and unemployment c) A positive relationship d) That inflation is always zero when unemployment is zero

Q6. The long-run Phillips curve is: a) Downward-sloping b) Upward-sloping c) Vertical at the natural rate of unemployment d) Horizontal

Q7. Stagflation is: a) Low inflation + low unemployment b) High inflation + high unemployment simultaneously c) Deflation d) Zero growth

Q8. The Volcker disinflation (1979–82): a) Raised inflation b) Cut inflation from 13% to 3% by raising rates above 20%, causing a severe recession c) Had no effect d) Used fiscal policy, not monetary

Q9. Why did the 2021–23 disinflation succeed without a deep recession? a) The Fed didn't raise rates b) Expectations were anchored + supply chains healed + immigration expanded labor supply c) Inflation was never high d) Fiscal policy fixed everything

Q10. Friedman's accelerationist hypothesis says: a) Inflation always stays constant b) Keeping unemployment permanently below NAIRU requires ever-accelerating inflation c) The Phillips curve is always stable d) Central banks are irrelevant

Short answer

SA1. State the quantity theory and its long-run prediction. SA2. Distinguish demand-pull from cost-push inflation. SA3. Why does central bank credibility matter more than the specific tools? SA4. Why is the long-run Phillips curve vertical? SA5. What caused the 1970s stagflation?

True / False

TF1. In the long run, inflation is primarily a monetary phenomenon. (T/F) TF2. The Phillips curve shows a permanent trade-off between inflation and unemployment. (T/F) TF3. Anchored expectations make disinflation cheaper (less unemployment needed). (T/F) TF4. The 2021–23 inflation was purely demand-driven. (T/F) TF5. The Volcker disinflation re-anchored inflation expectations for decades. (T/F)

Selected answers in appendices/answers-to-selected.md.