types of inflation

explain why a high inflation rate triggers an increase in interest rates?

• interest rates are raised to attract domestic deposit in the face of a rapidly growing economy

• Interest rates are raised to discourage domestic credit consumption.

• Interest rates are raised to improve the purchasing power of the domestic currency

• Interest rates are raised to attract cheaper foreign imports in the face of lower domestic production

this type of inflation is related with stagflation

• creep inflation

• hyper inflation

• open inflation

• galloping inflation

Simon borrowed R10 000 from the bank at the end of 2011 at a fixed interest rate of 20%. At the end of 2012, the inflation rate was 25%. Inflation has been ________ to Simon; the real value of his loan plus interest payments changed to ________.

• beneficial; R9 600

• beneficial; R4 800

• beneficial; R8 000

• costly; R10500

Which of the following statements is/are correct? One way to combat demand-pull inflation.

i. is if the Reserve Bank raises the interest rates.

ii.Demand-pull inflation usually leads to increased prices and increased unemployment.

iii.Demand-pull inflation can be initiated by a cut in the marginal tax rate.

• i and ii

• i and iii

• ii and ii

• All three statements are correct

state if the following statements is true?

• The consumer price index (CPI) measures the cost of all consumer goods and services

• A 10% rate of inflation means that inflation is 10% per month

• The inflation rate is calculated from a set of CPI figures.

The producer price index (PPI):

• measures the cost of a representative basket of goods and services to the consumers

• includes the cost of manufactured goods to the consumers.

• includes the cost of capital and intermediate goods.

• excludes the price of imported goods

Inflation is:

• a rapid increase in the quantity of money

• a sustained increase in prices in general

• too much money chasing too few goods

• a once-off increase in prices in general.

Demand-pull inflation may be caused by:

• An increase in costs

• A reduction in interest rates

• A reduction in government spending

• An outward shift in aggregate supply

The effects of inflation on the price competitiveness of a country's products may be offset by:

• An appreciation of the currency

• A revaluation of the currency

• A depreciation of the currency

• Lower inflation abroad

An increase in aggregate demand is more likely to lead to demand-pull inflation if:

• Aggregate supply is perfectly elastic

• Aggregate supply is perfectly inelastic

• Aggregate supply is unit elastic

• Aggregate supply is relatively elastic