Classroom Economist: Inflation

When deflation occurs, everything is falling in value except:

• Income

• Prices

• Debt

• Commodities

What is the Federal Reserve’s dual mandate?

• Clearing checks and electronic payment

• Maintaining price stability and low interest rates

• Fiscal policy and monetary policy

• Maintaining price stability and maximum sustainable employment

Inflation can be described as:

• An increase in the price of certain goods, such as oil or wheat

• An increase in the purchasing power of power

• A decrease in the price of certain goods, such as oil or wheat

• A decrease in the purchasing power of money

The prices of gold, platinum, fine art and yachts are examples of prices used as leading indicators of inflation, since people hold onto them when they expect overall price levels to rise.

• True

• False

Inflation is caused by:

• An increase in the amount of money available relative to the amount of goods available

• Shocks to the economy such as an oil shortage

• The Federal Reserve decreasing the money supply

• An increase in the cost of living

Why are food and energy taken out of core inflation measures?

• Central banks do not look at commodity or retail prices when monitoring inflation

• Food and energy prices fluctuate from month to month, so inflation is hard to gauge through these prices

• They are bought by everybody, so they are not important.

• Their prices usually remain stable, with few changes over time.

What is deflation?

• When the inflation level is slowing dow

• When the price level rises very rapidly

• A persistent decline in income

• A persistent decline in the price of all things, including income

What was responsible for the German hyperinflation and inflation after the American Revolution?

• Crop freezes that caused a food shortage

• Fiscal policies designed to reduce the federal debt

• Too much money being printed

• The struggle for independence

Inflation works its way quickly into the economy through retail prices.

• True

• False