State two social benefits of inflation
What will be an ideal response?
The social benefits of inflation are as follows:
a) Inflation caused by money creation acts as an implicit tax. It increases the government's revenue by transferring purchasing power from consumers and producers in an economy to the government.
b) Inflation can temporarily reduce the real interest rate and the real wage rate. This increases an employer's willingness to hire more and produce more.
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Suppose GDP ________ the level of potential output. We would expect to see ________ unemployment, rising wages, and rising prices.
A. exceeds; low B. is? below; low C. is? below; high D. exceeds; high
AIG almost went bankrupt in 2008 because
A) the value of the securities underlying its credit default swaps declined significantly. B) it lacked the collateral required by buyers of its credit default swaps. C) prices of securities underlying their credit default swaps were hard to determine since they were no longer actively traded. D) all of the above.
The key reason that the Laspeyres price index tends to overstate the impact of price changes on consumers is that it:
A) only accounts for price increases and ignore price decreases. B) measures prices two periods after the actual price changes occurred. C) ignores the possibility that consumers alter their consumption as prices change. D) All of the above are correct. E) none of the above
Federal Deposit Insurance Corporation protection of deposits
a. increases the likelihood of bank runs b. increases bankers' incentives to be cautious with depositors' money c. reduces bankers' incentives to be cautious with depositors' money d. lessens the need for the Fed to regulate banking activity e. began in 1913 with the creation of the Fed