Inflation

Demand-Pull inflation can be describes as too many _________ chasing too few __________

• jobs, workers

• consumers, producers

• pounds/dollars, goods

What 2 types of inflation are there?

• demand pull and cost push
• demand pull and supply glut
• supply glut and demand side
• supply inflation and demand inflation

Inflation causes the purchasing power of the pound to increase.

• True

• False

If the price level rises in year 2, from year 1 and the real GDP rises in the same period, which of the following is true?

• Real GDP will increase by more than nominal GDP does, from year 1 to year 2.

• Nominal and real GDP must change by the same percentages from year 1 to year 2.

• Real GDP only increases because the price level increased.

• Nominal GDP will increase by more than real GDP does, from year 1 to year 2.

• Nominal GDP will fall from year 1 to 2.

If the nominal GDP increased by 15% from year 1 to year 2, and the price level changed from 100 to 110 from year 1 to year 2, which of the following is true?

• Real GDP increased between year 1 and year 2 by approximately 5%

• Real GDP fell by 10% between the two years.

• The rate of inflation was 15% between the two years.

• Real GDP increased by 15% between year 1 and year 2.

• The price level must have increased by 5% from year 1 to year 2.

The annual inflation rate is expected to be 5 percent over the next 3 years. Juan plans to take out a 3-year loan to purchase a car. If Juan decides not to take out a loan if the real interest rate exceeds 3 percent, the highest nominal interest rate he is willing to pay is:

• 2%

• 3%

• 8%

• 15%

• 25%

In the country of Agronomia, banks charge 10 percent interest on all loans. If the general price level has been increasing at the rate of 4 percent per year, the real rate of interest in Agronomia is:

• 2.5%

• 4%

• 6%

• 10%

• 14%

Which of the following would be true if the actual rate of inflation were less than the expected rate of inflation?

• Inflation had been under predicted.

• The real interest rate had exceeded the nominal interest rate.

• The real interest rate had been negative.

• The economy would expand because of the increased investment and spending.

• People who borrowed funds at the nominal interest rate during this time period would lose.

If inflation is 3 percent at the time when a worker’s nominal income increases from £50,000 to £52,500, then the worker’s real income has:

• approximately increased by 2%.

• approximately increased by 5%.

• approximately decreased by 2%.

• approximately decreased by 5%.

• not changed.

The annual inflation rate is expected to be 2 percent over the next four years. If you take out a four-year loan at a nominal interest rate of 6 percent, what real interest rate are you paying?

• 3%

• 4%

• 6%

• 8%

• 12%