Money and Liquidity Quiz

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Questions and Answers

What is the cost associated with inflation known as 'shoe leather costs'?

The cost of purchasing new shoes to keep up with fashion trends
The cost of printing new menus
The cost of wearing out shoes from increased trips to the bank (correct)
The cost of computing

What is the term used to describe the effect of inflation on consumer decisions?

Opportunity cost
Consumer confusion (correct)
Tax distortion
Menu cost

What is the primary cause of inflation according to the classical theory?

A decrease in money supply
An increase in government spending
An increase in money supply (correct)
A decrease in taxes

What is the term used to describe the impact of inflation on the distribution of wealth?

Wealth redistribution (B) Signup and view all the answers

What is the cost associated with updating prices and menus to reflect inflation known as?

Menu cost (D) Signup and view all the answers

What is the Quantity Theory of Money?

A theory that asserts the quantity of money available determines the price level and that the growth rate in the quantity of money available determines the inflation rate (C) Signup and view all the answers

What is monetary neutrality?

The proposition that changes in the money supply do not affect real variables (B) Signup and view all the answers

What are real wages?

The money wage adjusted for inflation, measured by the ratio of the wage rate to price (W/P) (C) Signup and view all the answers

What is the Fisher effect?

The one-for-one adjustment of the nominal interest rate to the inflation rate (B) Signup and view all the answers