4.2.3.3 Inflation and deflation NOTES

What does inflation refer to?

• A decrease in the rate of inflation

• An increase in the money supply without changes in price levels

• A sustained increase in the general price level of goods and services

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

What is deflation?

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

• Decrease in the rate of inflation

• Reduction in the money supply

• Increase in the general price level of goods and services

What does disinflation refer to?

• A decrease in the rate of inflation

• A rapid increase in price levels

• An increase in the rate of inflation

• A sustained decrease in price levels

What causes demand-pull inflation?

• Reduction in consumer spending

• Aggregate demand exceeds aggregate supply

• Decreases in production costs

• Supply chain disruptions

What is a consequence of cost-push inflation?

• Higher prices for goods and services

• Increased consumer spending

• Lower prices for goods and services

• Increased aggregate supply

According to Fisher's equation of exchange, what does 'M' represent?

• Price level

• Velocity of money

• Quantity of goods and services produced

• Money supply

What effect do expectations of future price increases have on the economy?

• They lead to demand-pull inflation

• They lead to deflation

• They decrease consumer spending

• They stabilize the price levels

What is a potential consequence of high inflation for individuals?

• Decreased cost of living

• Stable investment returns

• Reduced real incomes and savings

• Increased real incomes

How can deflation affect consumer behavior?

• Increases the velocity of money

• May lead to postponed spending and investment

• Leads to increased investment

• Encourages immediate spending

What impact can changes in world commodity prices have on domestic inflation?

• Reduces the effectiveness of monetary policies

• Can lead to cost-push inflation

• Only affects the stock market

• No impact on domestic markets