31 Inflation and Deflation

Which of the following must happen as a result of inflation?

• a decline in uncertainty

• a fall in the value of money

• an improvement in the balance of payments

• an increase in savings

Which of the following is a possible cause of demand-pull inflation?

• an increase in government expenditure

• an increase in the price of oil

• a rise in wages

• a rise in imports

Who, among the following, is most likely to benefit during a period of rapid inflation?

• borrowers

• pensioners

• savers

• workers in strong unions

Which of the following is a cause of cost-push inflation?

• an increase in the money supply

• an increase in government expenditure on pensions

• a rise in the price of housing

• a rise in the cost of transporting goods

Which of the following describe as 'a very rapid and large rise in the price level'?

• cost-push inflation

• demand-pull inflation

• monetary inflation

• hyperinflation

Which of the following define as 'rises in the price level caused by excess demand'?

• cost-push inflation

• demand-pull inflation

• monetary inflation

• hyperinflation

Which of the following define as 'rises in the price level caused by higher costs of production?

• cost-push inflation

• demand-pull inflation

• monetary inflation

• hyperinflation

Governments aim to encourage stable prices because inflation can result in a current account deficit on the balance of payments. How does high inflation contribute to a current account deficit?

• Countries have to barter manufactured goods for raw materials.

• Goods manufactured for export lose their competitiveness.

• Numbers of foreign visitors increase.

• Spending on imported goods is reduced.

What is the definition of inflation?

• an increase in demand

• an increase in output

• an increase in the general price level

• an increase in wages

A worker earns $250 each week, which leaves a disposable income of $175. What will affect the real value of the worker’s $250 earned income?

• a change in government spending

• a change in interest rates

• a change in the price level

• a change in the tax rate