Introduction to inflation

What is monetary policy?

• Government actions that influence the money supply to control inflation.
• Government spending on infrastructure projects.
• Policies aimed at increasing production.
• Changes in tax rates to influence demand.

How does inflation affect bondholders?

• It reduces the real value of the bond’s returns.
• It increases the return on bonds.
• It stabilizes bond yields.
• It increases the interest rates on bonds.

In what way can inflation affect wage earners?

• It may erode their real wages.
• It boosts their purchasing power.
• It increases the value of savings.
• It stabilizes the cost of living.

Which of the following is a potential long-term effect of high inflation?

• A decrease in the value of money.
• Increased purchasing power.
• A rise in international trade.
• Stable wage growth.

Which of the following is a characteristic of hyperinflation?

• Prices rise uncontrollably at a very high rate.
• Prices remain stable but very high.
• Wages and incomes fall.
• Unemployment rates remain unaffected.

What is the relationship between inflation and interest rates?

• Inflation typically leads to higher interest rates.
• Inflation leads to lower interest rates.
• There is no correlation between inflation and interest rates.
• Interest rates are the primary cause of inflation.

Which of the following is a typical response to rising inflation?

• Central banks may raise interest rates to curb inflation.
• Governments may cut taxes to stimulate spending.
• Central banks may increase the money supply.
• Governments may freeze wages.

What does the Federal Reserve do to control inflation?

• Adjusts interest rates and controls money supply.
• Increases government spending.
• Decreases interest rates and increases taxes.
• Regulates international trade.

What does the term "real income" refer to?

• Income adjusted for inflation.
• The total amount of wages earned.
• The income from all sources.
• Nominal income without adjustments.

Which of the following is a consequence of high inflation for consumers?

• It reduces their real income.
• It increases their purchasing power.
• It lowers the cost of living.
• It increases the value of savings.

What is the relationship between inflation and unemployment, according to the Phillips Curve?

• There is an inverse relationship.
• An increase in inflation leads to a decrease in unemployment.
• Higher inflation causes higher unemployment.
• Inflation and unemployment are unrelated.

Which of the following is a consequence of inflation?

• Reduced purchasing power of money.
• Increased savings rates.
• Improved wages for workers.
• Decreased cost of living.

Which of the following can result in a deflationary period?

• A reduction in consumer demand and spending.
• An increase in government spending.
• A rise in raw material prices.
• Higher production costs.

What is the term for the value of money relative to goods and services?

• Purchasing power.
• Interest rates.
• Exchange rates.
• Consumer confidence.

Which of the following can contribute to demand-pull inflation?

• A sharp increase in consumer spending.
• A sudden drop in production costs.
• Government-imposed price controls.
• A decrease in exports.

Which of the following is an effect of inflation on international trade?

• It can make exports more expensive.
• It can lower the cost of exports.
• It leads to a stronger domestic currency.
• It increases the competitiveness of imports.

Which of the following is a tool used by central banks to control inflation?

• Raising interest rates.
• Increasing government spending.
• Decreasing taxes.
• Increasing the supply of money.

What is the main cause of inflation?

• An increase in the supply of money.
• A decrease in demand for goods.
• A drop in interest rates.
• A reduction in wages.

What does the term "stagflation" refer to?

• High inflation combined with high unemployment and stagnation.
• A stable period of inflation and growth.
• A sharp decrease in inflation without rising unemployment.
• High inflation during an economic boom.

What is one impact of high inflation on businesses?

• It increases production costs.
• It leads to lower costs for goods and services.
• It reduces competition.
• It encourages investment in the stock market.

What is hyperinflation?

• Extremely high and typically accelerating inflation.
• A mild increase in prices over time.
• A deflationary period in an economy.
• Stabilized price levels across the economy.

Which of the following is an example of demand-pull inflation?

• Increased consumer demand pushing prices up.
• A sudden increase in the supply of money.
• Higher production costs leading to price hikes.
• A decrease in government spending.

Which type of inflation is caused by an increase in the cost of raw materials?

• Cost-push inflation.
• Demand-pull inflation.
• Monetary inflation.
• Structural inflation.

Which of the following is an effect of inflation on savings?

• It reduces the value of money saved.
• It increases the purchasing power of savings.
• It causes inflation rates to decrease.
• It stabilizes interest rates.

In which economic condition do prices fall and economic activity declines?

• Deflation.
• Inflation.
• Hyperinflation.
• Stagflation.

Which of the following best defines inflation expectations?

• The rate at which people expect prices to rise in the future.
• The actual rate of inflation over the past year.
• The amount of money in circulation.
• The level of government spending on inflation control.

What is the term for the average increase in prices across the economy?

• Inflation rate.
• Unemployment rate.
• GDP deflator.
• Interest rate.

How can inflation impact international competitiveness?

• It can make a country's exports more expensive.
• It makes a country's exports cheaper.
• It leads to a stable currency value.
• It encourages higher imports.

What is the primary goal of inflation-targeting monetary policy?

• To maintain a stable inflation rate.
• To reduce unemployment rates.
• To increase government spending.
• To stabilize the stock market.

What is the purchasing power of money?

• The amount of goods and services that can be bought with a unit of currency.
• The amount of money a person earns.
• The total value of a country's exports.
• The value of money on the stock market.

What is the effect of inflation on the value of the currency?

• It decreases the value of the currency over time.
• It increases the currency’s purchasing power.
• It stabilizes the value of the currency.
• It makes the currency stronger in international markets.

Which of the following is a common strategy for protecting against inflation?

• Investing in assets like stocks or real estate.
• Holding cash in bank accounts.
• Reducing government spending.
• Avoiding debt.

Which of the following can cause inflation in a growing economy?

• Increased demand for goods and services.
• A decrease in the supply of money.
• Lower consumer spending.
• Higher tax rates.

Which economic indicator is most directly affected by inflation?

• Consumer Price Index (CPI).
• Gross Domestic Product (GDP).
• Unemployment rate.
• Interest rates.

How does inflation affect the cost of borrowing money?

• Inflation typically increases the cost of borrowing.
• It decreases the cost of borrowing money.
• It has no effect on borrowing costs.
• It makes borrowing more affordable.

Inflation can be measured by:

• The Consumer Price Index (CPI).
• The stock market index.
• The exchange rate.
• Unemployment levels.

Which of the following is true about deflation?

• It leads to falling prices and reduced economic activity.
• It causes prices to rise rapidly.
• It results in higher consumer demand.
• It increases wages significantly.

What is inflation?

• A general increase in prices and fall in the purchasing value of money.
• An increase in the value of a currency.
• A decrease in the prices of goods and services.
• A sudden drop in market activity.

Which of the following is NOT a type of inflation?

• Profit-push inflation.
• Demand-pull inflation.
• Cost-push inflation.
• Monetary inflation.

Which of the following is an effect of inflation on investments?

• It reduces the real return on investments.
• It increases the returns on investments.
• It stabilizes the stock market.
• It lowers the cost of bonds.

Which of the following is an impact of inflation on the economy?

• Distorted spending and saving behaviors.
• Increased stability in the economy.
• Lower unemployment rates.
• Increased savings rates.

What is a common way that inflation is measured?

• Using the Consumer Price Index (CPI).
• By examining stock market trends.
• By calculating GDP growth.
• By measuring employment rates.

Cost-push inflation is caused by:

• Rising production costs.
• Increased consumer demand.
• A decrease in interest rates.
• An increase in government subsidies.

What is an example of a non-monetary factor contributing to inflation?

• A natural disaster disrupting production.
• An increase in the money supply.
• A reduction in interest rates.
• An increase in government subsidies.

Which of the following best describes inflation targeting?

• Central banks setting a specific inflation rate as a goal.
• A government spending program aimed at increasing inflation.
• Increasing tax rates to combat inflation.
• Policies to directly control wages.