Understanding Inflation

What is inflation?

• A decrease in the price of goods and services

• An increase in the general level of prices across the economy

• A measure of economic growth

• A reduction in consumer spending

How is inflation traditionally measured in Australia?

• Gross Domestic Product (GDP)

• Consumer Price Index (CPI)

• Unemployment Rate

• Interest Rates

What does the Consumer Price Index (CPI) measure?

• The average change in retail price of a basket of goods and services

• The total value of goods produced in a country

• The rate of employment in the economy

• The level of government spending

What are the two main types of inflation?

• Demand-side factors and supply-side factors

• Monetary inflation and fiscal inflation

• Cost-push inflation and demand-pull inflation

• Hyperinflation and deflation

What is demand inflation generally associated with?

• A period of economic recession

• A period of strong growth and employment

• A decrease in consumer spending

• A decrease in exports

Which factor is NOT mentioned as a cause of demand inflation?

• Increase in consumer optimism about the future

• Increase in business confidence

• Increase in government spending

• Increase in exports

What is cost inflation associated with?

• Increase in consumer demand

• Increase in production costs

• Decrease in supply of goods

• Decrease in consumer income

Which of the following is a common supply-side cause of cost inflation?

• Decrease in wages paid to employees

• Increase in government subsidies

• Increase in wages paid to employees

• Decrease in interest rates

What is one effect of inflation on local producers?

• Increases their competitiveness overseas

• Causes them to lose out to overseas competitors

• Reduces their production costs

• Increases their market share locally

How does inflation affect the allocation of resources?

• Encourages investment in productive assets

• Leads to investment in unproductive resources

• Reduces the value of shares and property

• Increases government spending on infrastructure