12.1 Inflation and Deflation

What is deflation?

• Increase in prices

• Decrease in prices

• Stable prices

• None of the above.

Which of the following is a cause of inflation?

• Increased demand

• Decreased demand

• Stable demand

• None of the above.

What happens to the cost of living during inflation?

• Increases

• Decreases

• Stays the same

• None of the above

During deflation, the cost of living tends to ______.

• Decrease

• Increase

• Stay the same

• None of the above

Deflation can lead to an increase in the purchasing power of ______.

• Money

• Gold

• Land

• Water

Which component is subtracted from the CPI later year in the inflation rate formula?

• CPI earlier year

• CPI next year

• CPI current year

• CPI base year

What was the approximate Consumer Price Index (CPI) in 1980?

• 50

• 75

• 100

• 150

Fill in the blank: The Consumer Price Index (CPI) increased by approximately ____ points from 1990 to 2010.

• 450

• 7

• 100

• 225

What is demand-side inflation?

• It occurs when an increase in the price level originates on the demand side of the economy.

• It occurs when an increase in the price level originates on the supply side of the economy.

• It is caused by a decrease in the money supply.

• It is unrelated to the economy.

Supply-side inflation occurs when an increase in the price level originates on the ______ side of the economy.

• A) demand

• B) supply

• C) money

• D) unrelated