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?

    <p>Wealth redistribution</p> Signup and view all the answers

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

    <p>Menu cost</p> Signup and view all the answers

    What is the Quantity Theory of Money?

    <p>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</p> Signup and view all the answers

    What is monetary neutrality?

    <p>The proposition that changes in the money supply do not affect real variables</p> Signup and view all the answers

    What are real wages?

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

    What is the Fisher effect?

    <p>The one-for-one adjustment of the nominal interest rate to the inflation rate</p> Signup and view all the answers

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