Chapter 20

Inflation is

• general and sustained rise in the average price level over time

• decrease in the rate at which prices increase over time

• increase in all prices in the economy over time

• sustained decline in ht3e average level of prices for a basket of goods over time

What has happened if the inflation rate was 8% last year and 5% this year?

• Deflation

• Disinflation

• Demand Pull inflation

• inflation

Which is NOT a critique of using the CPI to measure inflation?

• regional and cultural differences make it difficult to compare across countries or regions

• the basket of goods only represents "typical" households

• CPI is figured by weighting categories of goods based on their relative importance to the average household

• it looks solely at prices, disregards improvements in quality

Why do the weightings of the items in the basket used to calculate CPI need to be regularly updated?

• to reflect changes in consumer habits

• to reflect changes in govt spending

• to reflect fluctuations in the exchange rate

• to reflect changes interest rates

Core Inflation excludes which two sectors?

• Food and Housing

• Energy and Housing

• Food and Housing

• Energy and Food

Cost push inflation occurs when

• when production costs rise

• when taxes are cut

• when thee economy is close to full employment and the govt increases spending

• when the govt prints too much money

Demand pull inflation occurs when

• raw materials costs increase

• there is an increase in the money supply

• there is a supply side shock

• there is an increase in consumer demand

If inflation is occuring, which group would lose?

• Savers

• Borrowers

• Flexible income earners

• Importers

If inflation is occurring, which group would lose?

• Exporters

• Borrowers

• Fixed income earners

• Importers

If inflation is occurring, which group would win?

• Lenders

• Borrowers

• Fixed income earners

• exporters