Understanding Inflation in the Financial Economy

What is a primary cause of inflation?

• Decrease in the supply of goods and services

• Increase in the supply of money

• Decrease in the demand for goods and services

• Increase in the production of goods

What is an effect of inflation on the economy?

• Decreases the value of money

• Increases the value of money

• Stabilizes the stock market

• Reduces unemployment to zero

Which strategy is NOT used to control inflation?

• Increasing interest rates

• Decreasing government spending

• Printing more money

• Increasing taxes

What is hyperinflation?

• A moderate increase in prices over time

• A decrease in the general price level of goods and services

• An extremely rapid or out of control inflation

• A stable price level in the economy

What causes demand-pull inflation?

• A decrease in production costs

• An increase in demand for goods and services

• A decrease in taxes

• An increase in the supply of money

How does inflation affect interest rates?

• Interest rates decrease

• Interest rates increase

• Interest rates remain unchanged

• Interest rates are not related to inflation

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

• A decrease in demand for goods and services

• An increase in the money supply

• An increase in the cost of raw materials

• A decrease in taxes

How does inflation affect unemployment in the short term?

• It increases unemployment

• It decreases unemployment

• It has no effect on unemployment

• It first decreases then increases unemployment

Which of the following is a strategy to control inflation?

• Reducing the reserve requirement for banks

• Increasing government spending

• Reducing interest rates

• Increasing interest rates

How does inflation affect the exchange rate?

• It increases the value of the currency

• It decreases the value of the currency

• It has no effect on the exchange rate

• It stabilizes the exchange rate