Inflation & Deflation

What is Inflation?

• Inflation is a decrease in the general level of prices
• Inflation is an increase in the general level of prices 
• Inflation is a number that that compares prices in one year with prices with some earlier base year
• Inflation is measured in percentage rates that helps people

As inflation increases every dollar in value increases?

• True
• False

What is one cause of inflation?

• When the cost of necessities decrease

• When unemployment begins to increase

• When a large supply of money, earned or borrowed, is spent for goods that are in short supply, prices increases

• The main cause is deflation

How can we measure inflation?

• Money Supply
• Federal Reserve
• Interest Rates
• Consumer Price index

Inflation is most harmful to...

• Borrowers of money

• Index Wage earners

• Pensioners

• Owners of non-financial assets

If the CPI for year 2 is 105 and the CPI for year 3 is 110 then the inflation rate is:

• 5%

• 4.76%

• 3.12%

• 2%

Which of the following is not a limitation of CPI?

• It doesn't show differences in consumption patterns

• It doesn't show prices of new products

• It doesn't show prices of rural areas

• It doesn't show the 'average' household prices

What is the definition of Deflation?

• An increase in the general level of prices
• A decrease in the general level of prices
• Its the rate that banks make available to their business customers
• involves spending more money

What is the name of inflation that removes the top 15% and bottom 15% of volatile items?

• The CPI

• Underlying inflation

• Trimmed mean inflation

• Weighted median inflation

If the government cut company taxes, what would be the most likely effect on inflation?

• Increased cost push inflation

• Increased demand pull inflation

• Fall in inflation

• Hyperinflation