Economics -Inflation & Unemployment

If the CPI stood at 143.5, and rose 145.0 a year later, the annual rate of inflation was

• 1.5%

• 0.15%

• 98.9%

• 1.04%

The items in the Consumer Price Index (CPI) are weighted

• according to the pattern of consumption of an average family

• to offset changes in the items comprising the pattern of spending from year to year

• to counteract differences in income between groups of consumers

• according to the proportion of the national income spent on items in that group

The best evidence that inflation is due to cost-push factors would be that

• price increases are gradual but prolonged

• wages are rising faster than labour productivity

• output is substantially below the capacity of the economy

• consumer borrowing has reached record levels

An economist would probably conclude that inflation was due to demand pressure rather than cost pressure if

• the economy was in the boom phase of the business cycle

• there was considerable under-utilisation of productive capacity in the economy

• wages are increasing at a faster rate than real output

• there had been a recent fall in the exchange rate, meaning exports seemed cheaper to overseas purchasers

Which of the following statements best describes demand pull inflation?

• The price level is pushed up by higher costs of production

• Continual inflation causes competition in markets which forces up the level of prices

• Excess demand causes competition in markets which forces up the level of prices

• The rate of inflation is pulled along by rises in the money supply and monetary conditions in the economy

Which of the following combinations of events would probably have the greatest upward influence on price levels in Australia?

• Economic growth in the past year was less than 2% AND the level of industrial action in the workforce was at its lowest level in 5 years

• Full employment in a key sector of the economy AND the economy entering the trough phase of the business cycle

• Structural reforms designed to reduce the costs of business were implemented AND interest rates were falling

• Depreciation of the Australian currency AND high rates of inflation overseas

Which of the following would be UNLIKELY if moderate inflation was expected to continue?

• Unions would build inflationary expectations into their demands for pay rises

• The belief that the rate of inflation in the future will continue at the same rate as it has in the past

• People would 'invest' their excess funds in speculative rather than productive assets

• The aggregate level of savings will increase

If the general price level falls while money incomes remain constant then

• income has been redistributed to debtors

• the level of real income has increased

• income has been redistributed to importers

• the cost of living has increased

Which one of the following is a recognised result of inflation?

• Businesses face less risk in making investment decisions

• Government revenue falls unless the level of taxation is raised

• The cost of living falls

• People on fixed incomes face a decline in living standards

Economists consider inflation to be undesirable because

• inflation encourages consumers to buy domestic goods in preference to imports

• inflation increases the cost of saving

• inflation may lead to mis-allocation of resources

• inflation now means a recession is around the corner