Inflation Check

Which of the following best defines inflation?

• A sustained decline in the average level of prices for a basket of goods over time

• The total number of people who are actively seeking work, but cannot find employment

• A decrease in the rate at which average prices increase over time

• The general and sustained rise in the average level of prices over time

If the inflation rate was 5% last year and 3% this year, what has occurred?

• Demand pull inflation

• Deflation

• Disinflation

• Inflation

If the price of a basket of goods was $75 in 2016, and the same basket of goods cost $71 in 2017, what has occurred during this time?

• Disinflation of 5.33%

• Deflation of 5.33%

• Inflation of 5.63%

• An economic recession

Which of the following is not a criticism of using the CPI to measure inflation?

• The CPI looks solely at prices and disregards improvements in quality

• Regional and cultural differences in expenditure make it difficult to compare CPI figures across different areas of a country or countries

• The CPI is determined by weighting different categories of items based on importance to the average household

• The basket of goods used in computing the CPI is not necessarily representative of all households

Which of the following is most useful as a measure of inflation for firms?

• PPI

• CPI

• RPI

• RPI - X

Which of the following is most likely to be omitted when measuring the core CPI?

• Movie tickets

• Clothing

• Cooking oil

• Books

When does demand-pull inflation occur?

• Supply shocks

• Cost of raw materials rise

• Higher AD

• Governments print more money

In what scenario is demand-pull inflation most likely to occur?

• When the economy is well below its full employment level, and the government implements expansionary fiscal policy

• When the economy is close to its full employment level, and the government boosts spending

• Whenever the government implements expansionary fiscal policy by injecting money into the economy

• When a natural disaster causes the price of everyday items to rise because producers have to pay higher raw material costs

In what situation is cost-push inflation most likely to occur?

• When taxes are decreased

• When the economy is close to its full employment level, and the government boosts spending

• When the government prints too much money in an attempt to spur economic growth

• When the costs of production to firms rise

Who are the winners from inflation?

• Lenders, flexible-income earners, importers

• Borrowers, fixed-income earners, exporters

• Lenders, fixed-income earners, savers

• Borrowers, flexible-income earners, importers