ECON 304 MIDTERM EXAM 2025/2026 QUESTIONS WITH
ANSWERS GRADED A+
✔✔As of 2013, the outstanding U.S. currency is more than $1 trillion, which suggests
that the typical U.S. citizen holds $3,600 in cash. Is this an accurate inference? Why?
Yes; because dividing total currency by total U.S. population roughly works out to
$3,600 per person.
No; because criminals and foreigners hold large sums of dollars, so the average citizen
holds far less.
No; because the average citizen probably does not have $3,600 in her checking
account.
Yes; because the Fed rarely makes accounting mistakes when computing M1.
none of the above - ✔✔No; because criminals and foreigners hold large sums of
dollars, so the average citizen holds far less.
✔✔The direct cause of the hyperinflation that plagued Zimbabwe in the 2000s is
________.
printing of too much money by the central bank
government expenditures greatly above revenues
outlawing of price increases on many commodities
allowing the use of foreign currencies
the issuance of a $100 billion bank note - ✔✔printing of too much money by the central
bank
✔✔The root cause of the hyperinflation that plagued Zimbabwe in the 2000s is
________.
printing of too much money by the central bank
government expenditures greatly above revenues
outlawing of price increases on many commodities
allowing the use of foreign currencies
the issuance of a $100 billion bank note - ✔✔government expenditures greatly above
revenues
✔✔Inflation ________.
is costly because the classical dichotomy may not always hold
that is anticipated (or expected) can be costly
is costly for many reasons but chief among them is that inflation makes it more difficult
to plan for the future
all of the above
none of the above - ✔✔all of the above
, ✔✔With increases in inflation, demand for money that does not earn a return
decreases. Carrying less cash in our pockets means higher ________.
shoe-leather costs
menu costs
capital gain tax bills
all of the above
none of the above - ✔✔shoe-leather costs
✔✔With high unanticipated inflation ________.
stock market investors are always worse off than consumers and households
producers are always worse off than consumers
creditors are always worse off than debtors
all of the above
none of the above - ✔✔creditors are always worse off than debtors
✔✔Inflation ________.
is more costly when it is anticipated than when it comes as a surprise
makes it more difficult to plan for the future, whether it is a surprise or not
induces distortions in the money and goods market but not the labor market
all of the above
none of the above - ✔✔makes it more difficult to plan for the future, whether it is a
surprise or not
✔✔Private saving refers to ________.
after-tax income minus consumption expenditures
a flow variable which adds to the stock of wealth
the private saving rate times disposable income
all of the above
none of the above - ✔✔all of the above
✔✔Government saving refers to ________.
Assume there is no government debt.
tax revenues minus transfers minus government purchases
tax revenues plus transfers minus government consumption
the saving rate times transfers
national plus private saving
none of the above - ✔✔tax revenues minus transfers minus government purchases
✔✔How can the U.S. federal government induce increases in the national saving rate?
ANSWERS GRADED A+
✔✔As of 2013, the outstanding U.S. currency is more than $1 trillion, which suggests
that the typical U.S. citizen holds $3,600 in cash. Is this an accurate inference? Why?
Yes; because dividing total currency by total U.S. population roughly works out to
$3,600 per person.
No; because criminals and foreigners hold large sums of dollars, so the average citizen
holds far less.
No; because the average citizen probably does not have $3,600 in her checking
account.
Yes; because the Fed rarely makes accounting mistakes when computing M1.
none of the above - ✔✔No; because criminals and foreigners hold large sums of
dollars, so the average citizen holds far less.
✔✔The direct cause of the hyperinflation that plagued Zimbabwe in the 2000s is
________.
printing of too much money by the central bank
government expenditures greatly above revenues
outlawing of price increases on many commodities
allowing the use of foreign currencies
the issuance of a $100 billion bank note - ✔✔printing of too much money by the central
bank
✔✔The root cause of the hyperinflation that plagued Zimbabwe in the 2000s is
________.
printing of too much money by the central bank
government expenditures greatly above revenues
outlawing of price increases on many commodities
allowing the use of foreign currencies
the issuance of a $100 billion bank note - ✔✔government expenditures greatly above
revenues
✔✔Inflation ________.
is costly because the classical dichotomy may not always hold
that is anticipated (or expected) can be costly
is costly for many reasons but chief among them is that inflation makes it more difficult
to plan for the future
all of the above
none of the above - ✔✔all of the above
, ✔✔With increases in inflation, demand for money that does not earn a return
decreases. Carrying less cash in our pockets means higher ________.
shoe-leather costs
menu costs
capital gain tax bills
all of the above
none of the above - ✔✔shoe-leather costs
✔✔With high unanticipated inflation ________.
stock market investors are always worse off than consumers and households
producers are always worse off than consumers
creditors are always worse off than debtors
all of the above
none of the above - ✔✔creditors are always worse off than debtors
✔✔Inflation ________.
is more costly when it is anticipated than when it comes as a surprise
makes it more difficult to plan for the future, whether it is a surprise or not
induces distortions in the money and goods market but not the labor market
all of the above
none of the above - ✔✔makes it more difficult to plan for the future, whether it is a
surprise or not
✔✔Private saving refers to ________.
after-tax income minus consumption expenditures
a flow variable which adds to the stock of wealth
the private saving rate times disposable income
all of the above
none of the above - ✔✔all of the above
✔✔Government saving refers to ________.
Assume there is no government debt.
tax revenues minus transfers minus government purchases
tax revenues plus transfers minus government consumption
the saving rate times transfers
national plus private saving
none of the above - ✔✔tax revenues minus transfers minus government purchases
✔✔How can the U.S. federal government induce increases in the national saving rate?
