Which of the following is not a consequence of hyperinflation?
A) The price level grows in excess of hundreds of percentage points per year.
B) Hyperinflation causes an economy to suffer slow growth.
C) Money loses value so rapidly that individuals and firms stop holding it.
D) Money's function as a medium of exchange is enhanced.
D
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In the market for magazines, the "income effect" means that
A) magazines are usually purchased by people with higher than average incomes. B) a decrease in the price of a substitute product like books will make magazine readers feel a little poorer than they were before. C) an increase in the price of magazines will reduce the total purchasing power of magazine readers, making them able to afford fewer magazines. D) an increase in the price of magazines will raise the relative price of magazines to books, causing magazine readers to read more books and fewer magazines.
The experience of Paul Volcker's fight against inflation during the late 1970s and early 1980s indicates that firms and workers may have
A) had adaptive expectations. B) had rational expectations but didn't trust Fed announcements. C) preferred high unemployment to high inflation. D) Both A and B are correct answers.