2.9, 2.10

What is the Reserve Bank of Australia’s (RBA) target range for inflation?

• 0–1%

• 1–2%

• 2–3%

• 3–4%

Why is zero inflation not desirable in an economy like Australia’s?

• It increases purchasing power permanently

• It can undermine economic growth and lead to unemployment

• It prevents cost inflation

• It enhances international competitiveness

Which of the following best defines 'disinflation'?

• A. A decline in the overall price level

• B. A drop in inflation to below zero

• C. A fall in the inflation rate, but still remaining positive

• D. A sudden increase in commodity prices

The Consumer Price Index (CPI) is based on:

• Government spending patterns

• Average national income

• Retail prices of goods and services in a typical household basket

• Export and import prices only

Underlying (core) inflation excludes which of the following?

• Services

• Volatile items like fuel and fresh food

• All non-essential goods

• All imported goods

A limitation of using the CPI as a measure of inflation is:

• It overestimates rural household expenditures

• It includes black market activity

• It only reflects metropolitan households’ spending

• It adjusts accurately for quality changes in products

Demand inflation is primarily caused by:

• Increased production costs

• Reduced interest rates leading to higher spending

• Reduced disposable income

• A rise in commodity prices

What is one key consequence of high inflation?

• Increased savings rates

• Increased real value of fixed incomes

• Erosion of purchasing power

• Greater international competitiveness

Low inflation or deflation can lead to:

• Higher consumer spending

• Lower unemployment

• Deferred consumption and weak growth

• Increased asset values

What is considered a sustainable rate of economic growth in Australia?

• 1%

• 2%

• 3%

• 5%