Recession, Hyperinflation, and Stagflation Quiz

What is hyperinflation?

• Prices rise extremely fast, and money becomes almost worthless

• A small, normal increase in prices

• Prices stay the same over time

• A short dip in economic activity

Which country had 489 billion percent inflation in 2008?

• Germany

• Hungary

• Zimbabwe

• The United States

What caused people to spend money quickly during hyperinflation?

• They expected prices to keep rising

• The government gave them bonuses

• They wanted to save money

• Prices were going down

What is a recession?

• A drop in economic activity (GDP, spending, jobs)

• A time when prices are rising fast

• A long period of stable growth

• A time when money is destroyed

What does the Federal Reserve do to help during a recession?

• Increase taxes

• Lower interest rates to encourage spending

• Close down banks

• Print more money for everyone

What’s a liquidity trap?

• When banks run out of cash

• When people don’t spend even with low interest rates

• When inflation helps the economy grow

• A trap for catching money thieves

What was the Great Depression known for?

• Low unemployment and growth

• Rising prices and investment

• Massive unemployment and falling prices

• Stable incomes and full stores

What is stagflation?

• A fun economics game

• Inflation that helps the economy

• Inflation + slow or no economic growth

• A very long recession

How did Paul Volcker stop stagflation?

• Gave everyone money

• Printed more currency

• Lowered interest rates

• Raised interest rates to stop inflation

Why are expectations important in economics?

• What people think will happen can change what actually does happen

• Economists like to guess

• Predictions never matter

• They don’t affect the economy