1. lle experienced deflation in 2006. 11. lle experienced disinflation in 2006. lle experienced inflation in 2006. (A) I only (B) II only (C) Ill only D) I and ll only E) II and Ill only 9 . Which of the following is considered a cost of inflation? 1. Menu costs 11. Shoe Leather costs 111. Money printing costs (A) I only (B) II only (C) Ill only (D) I and ll only (E) II and Ill only 10. Barb receives a retirement pension that is indexed annually for inflation. This means that (A) her pension payments are adjusted for inflation to maintain her purchasing power B) her pension payments are adjusted for inflation to increase her purchasing power C) her pension payments are unadjusted for inflation (D) her pension payments are adjusted for inflation to decrease her real income (E) her pension payments are adjusted for inflation to increase her real income 11. Which of the following do economists generally consider the least desirable? (A) Modest inflation B) Modest disinflation (C) Significant disinflation D) Significant inflation E) Significant deflation 12. Andrew has a student loan that he pays a fixed 5% annual interest on. If all prices in the economy decline by 10%, Andrew is (A) better off, since he can now purchase more goods and services (B) better off, since he can now purchase 10% more goods and services C) worse off, since he now effectively pays interest D) worse off, since he now effectively pays 15% interest E) unaffected, since he is not a lender of money 13. Which of the following are important when considering whether inflation is problematic or not? The current level of prices 11. Whether or not the rate of inflation is very high 111. Whether or not inflation is expected (A) I only (B) ll only (C) Ill only (D) ll and Ill only (E) 1, II, and Ill 14. Which the following statements is true? (A) Unexpected inflation can lead to distortions in economic activity. (B) Deflation is a desirable alternative to inflation. C) Deflation is a desirable alternative to disinflation. D) Lenders who loan at fixed rates benefit when there is inflation. (E) (Volatility in inflation rates encourages lenders to loan more money.15. First Bank of Thereading loaned out money at annual interest last year believing that inflation would be 2%. However, the actual rate of inflation was 3.5%. Which Of the following did First Bank of Thereading experience? (A) Unexpected inflation (B) Expected inflation C) Quality bias D) Substitution bias (E) Introduction of new goods bias 16. The term hyperinflation refers to a period when I. the rate of inflation is very high Il. the rate of disinflation is very high Ill. the rate of deflation is very high (A) I only (B) Il only (C) Ill only (D) I and ll only (E) 1, II, and Ill(C) distraction costs (D) production costs (E) misperception costs 6. Which of the following parties is most likely to benefit from unexpected in Ration? (A) A person who owes money at a variable rate of interest (B) A person who lends money at a variable rate of interest (C) A person who owes money at a fixed rate of interest (D) A person who lends money at a fixed rate of interest (E) It is not possible for anyone to benefit from inflation