Inflation and Economic Concepts Quiz

What happens when there is inflation?

• Prices go up.

• The value of money goes down.

• It takes more money to buy goods and services.

• All of the above.

If inflation is 3% per year and the average income rose 5%, what has happened to real average income?

• It increased 2%.

• It increased 5%.

• It decreased 2%.

If a sandwich cost $2.50 in 1982, what does it cost now with the CPI at 194.1? (Assume that the sandwich price rose at the same rate as other prices in the index.)

• $3.50

• $2.35

• $4.85

Say that a family's annual income increased from $25,000 in 1982 to $45,000 in 2005. Considering the consumer price index, are they able to buy more or less in 2005?

• Less

• More

What are the causes of inflation?

• Increases in costs

• Increases in spending

• Federal government's fiscal policy

• All of the above

What is a wage-price spiral?

• A situation where rising wages cause higher prices, which in turn lead to demands for higher wages.

• A government policy to control inflation by freezing wages and prices.

• A strategy used by companies to reduce costs by lowering wages.

• An economic theory that suggests wages should always be higher than prices.

What is fiscal policy?

• Describes the way the government taxes and spends

• A tool the government uses to keep inflation and unemployment low

• Both A and B

• None of the above

How does the government control the amount of money people have to spend?

• Cutting taxes

• Raising taxes

• The amount of the federal deficit

• All of the above

What is a deficit?

• A surplus of resources

• A shortfall or lack of something

• An excess of supply

• A balanced budget

When did the American government begin having deficits?

• 1776

• 1789

• 1861

• 1930