1. Which of these actions can the U.S. government take in order to slow down an

Question

1. Which of these actions can the U.S. government take in order to slow down an hyperinflation?

Select one:

a. Raise government spending on infrastructure and military

b. Raise minimum wage

c. Print less money and switch to a bigger denomination

d. Lower the Discount Rate

e. Lower Income Tax

2.Interest rates and investment typically have a ----(1)---- relationship while income tax and consumption typically have a ----(2)---- relationship

Select one:

a. (1) Inverse; (2) Inverse

b. (1) Inverse; (2) Direct

c. (1) Direct; (2) Inverse

d. (1) Direct; (2) Direct

e. There is no relationship among these variables

3.Suppose that in Workaholia the total population = 380 million, the number of unemployed = 12 million, and the Labor Force Participation Rate is 50%. What is the unemployment rate in Workaholia if 60 million people are ineligible to work?

Select one:

a. 5.4%

b. 7.5%

c. 8.6%

d. 10.5%

e. 12.0%

Question text

4. Which one of these policies should the Fed engage in if unemployment is 9% and inflation is 1.5%?

Select one:

a. Issue new government bonds and increase government borrowing

b. Target a lower Federal Funds Rate

c. Increase discretionary government spending

d. Raise the Required Reserves Ratio

e. Sell government bonds through an Open Market Operation

Explanation / Answer

1. Answer: c. Print less money and switch to a bigger denomination

Explanation: Hyperinflation refers to a very high level of inflation rate which keeps increasing. Hyperinflation mainly takes place when the government meets its expenses by printing more money. Increased money supply causes inflation. However, when the government keeps printing more money instead of tightening the money supply, the inflation rate increases further and can potentially result in hyperinflation. To deal with hyperinflation, the government needs to stop printing money, which would reduce the money supply and contain inflation. Also, printing higher domination note will help people transact more effectively to meet their needs as increased price level will require more higher domination notes.

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