Inflation (Lecture)

Multiple Choice

What items are included in the market basket used to calculate the CPI?

• Items purchased by the average family of four in a city

• Only food and beverages

• Luxury goods only

• Items purchased by businesses

Multiple Choice

Which of the following best describes the Consumer Price Index (CPI)?

• A measure of the average change in prices paid by consumers for goods and services

• A measure of the total output of a country

• A measure of unemployment rates

• A measure of government spending

Multiple Select

Which of the following statements are true about the relationship between CPI and inflation rate?

• A steep growth in CPI is accompanied by high inflation rates

• The CPI remains constant during high inflation

• Inflation rate is the percentage change in CPI

• CPI and inflation rate are unrelated

Multiple Choice

Which of the following events can result in demand-pull inflation?

• Aggregate demand increases

• Aggregate supply increases

• Money supply decreases

• Aggregate supply decreases

Multiple Choice

Which of the following events can result in cost-push inflation?

• Aggregate demand increases

• Aggregate supply increases

• Money supply decreases

• Aggregate supply decreases

Open Ended

What is the main difference between demand-pull inflation and cost-push inflation?

Multiple Choice

Suppose a bank charges an interest rate of 7% on a loan, and the expected inflation rate is 5%. What is the real profit the bank expects to make?

• 2%

• 5%

• 7%

• 12%

Multiple Choice

If unexpected inflation increases by 1% above the expected rate, what happens to the bank's real profit?

• It decreases

• It increases

• It stays the same

• It becomes negative

Open Ended

Explain why borrowers might 'win' when there is unexpected inflation, using the example provided in the slides.

Multiple Select

Which of the following statements are true about the effects of unexpected inflation?

• Lenders may receive less real profit than expected.

• Borrowers may pay less real interest than expected.

• Unexpected inflation always benefits lenders.

• Unexpected inflation can hurt banks.

Multiple Choice

Which of the following is a cost associated with inflation that results from people making numerous transactions to avoid holding money?

• Menu costs

• Shoe-leather costs

• Unit of account costs

• Unexpected inflation

Multiple Choice

Which of the following is a cost associated with inflation that results from the costs of changing prices?

• Menu costs

• Shoe-leather costs

• Unit of account costs

• Unexpected inflation

Multiple Choice

If inflation is high, what is generally true about unemployment in the short run?

• Unemployment is also high

• Unemployment is generally low

• Unemployment is unaffected

• Unemployment fluctuates randomly

Match

Match the types of inflation.

• severe inflation

• high inflation and high unemployment

• inflation below 0%

hyper inflation

stagflation

deflation

• hyper inflation

• stagflation

• deflation