E.41: Understanding Inflation: Causes and Impacts

What causes demand-pull inflation?

• Decrease in consumer spending

• Increase in production costs

• Demand for goods and services surpasses their supply

• Decrease in the money supply

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

• Decrease in government expenditure

• Expansionary monetary policies

• Supply disruptions like natural disasters

• Technological advancements

What is built-in inflation driven by?

• Structural changes in the economy

• Increased consumer spending

• Decrease in the value of money

• Adaptive expectations of workers for higher wages

How does monetary inflation occur?

• Through a decrease in consumer demand

• By central banks decreasing the money supply

• Due to a decrease in production costs

• When there is an excessive increase in the money supply

What impact does inflation have on purchasing power?

• Only affects the wealthy

• Erodes the purchasing power of money

• Has no impact on purchasing power

• Increases the purchasing power of money

Why might central banks raise interest rates?

• To increase borrowing costs unnecessarily

• To reduce the standard of living

• To combat inflation

• To decrease the value of money

How does inflation affect international competitiveness?

• Decreases a country's competitiveness if inflation rates are persistently higher

• Improves a country's competitiveness

• Only affects countries with low inflation rates

• Has no effect on exports and imports