IB Economics (SL): Macroeconomic objectives: Inflation

Inflation is the sustained increase in the price of a product

• True

• False

The CPI measures the cost of goods and services in a typical household in the economy.

• True

• False

Which of the following is NOT a limitation of the CPI?

• Consumers changing their consumption patterns due to changing prices

• Comparisons over long periods of time (more than 10 years) are difficult

• Consumers tend to be loyal to particular products so their consumption patterns will not really change.

• Not all consumers will consume what is in the 'typical' basket of goods and services

The purchasing power of your income is called your

• real income

• nominal income

Which of the following is NOT a consequence of inflation?

• low menu costs

• high levels of uncertainty

• a false sense of the value of money

• reduced export competitiveness

Which of the following groups is likely to be better off in times of inflation?

• Pensioners

• Savers

• Borrowers

• Lenders

What would most governments consider an acceptable rate of inflation?

• 0 - 1%

• 1 - 2%

• 2 - 3%

• 3 - 4%

The diagram represents which type of inflation?

• demand-pull

• cost-push

Which of the following is NOT a reason why deflation rarely happens?

• Firms try to avoid additional menu costs

• Firms cannot reduce their unit costs

• The fear of price wars

• The inflexibility of wages

Which type of deflation is often referred to as 'bad' deflation

• That caused by increased AS

• That caused by decreased AD