CHAPTER 4B: INFLATION

The general price level of the economy is?

• Price index

• Inflation rate

• Both statements above are correct

• Both statements above are incorrect

Based on the inflation rate, into which types can inflation be classified?

• Moderate inflation

• Hyperinflation

• Galloping inflation

• All three statements are correct

Economists believe that:

• There is a short-term trade-off between inflation and unemployment, but no trade-off in the long run

• There is no trade-off between inflation and unemployment

• There is a trade-off between inflation and unemployment

• All of the above statements are correct

Which of the following can cause inflation?

• All of the above are correct

• Wage increases and rising prices of production factors

• Increase in money supply

• Increase in government spending

If the inflation rate increases by 8% and the nominal interest rate increases by 6%, then the real interest rate:

• Decreases by 14%

• Decreases by 2%

• Increases by 14%

• Increases by 2%

When the actual inflation rate is lower than the expected inflation rate:

• Lenders lose

• Lenders benefit

• Both statements above are incorrect

• Borrowers benefit

The Consumer Price Index (CPI) in 2016 was 140. What does this mean?

• The inflation rate in 2016 was 40%

• Prices of goods in 2016 increased by 40% compared to the base year

• Both statements above are incorrect

• Prices of goods in 2016 increased by 40% compared to 2015

In an economy, when the prices of production factors increase, it leads to:

• Cost-push inflation

• All three statements above are correct

• Demand-pull inflation

• Inflation due to money issuance

If the CPI in 2014 was 100, in 2016 was 120, and in 2017 was 126, what was the inflation rate in 2017?

• 5%

• 10%

• 26%

• 20%

Deflation occurs when:

• The price index this year is lower than last year

• All the statements above are incorrect

• The actual inflation rate is lower than the expected inflation rate

• The inflation rate this year is lower than last year