Understanding Inflation

Which U.S. President declared inflation as 'public enemy number one'?

• Richard Nixon

• Ronald Reagan

• Jimmy Carter

• Gerald Ford

How is inflation generally defined?

• A rise in prices leading to a decline in purchasing power

• An increase in the supply of goods

• A decrease in the value of currency

• A decrease in the cost of living

What is demand-pull inflation?

• When production costs decrease, leading to lower prices

• When the government increases taxes, leading to higher prices

• When demand for goods increases but supply remains unchanged, pushing prices up

• When supply exceeds demand, causing prices to drop

Which of the following is an example of cost-push inflation?

• A natural disaster limits the supply of essential goods

• An increase in the number of competitors in the market

• A new technology increases production efficiency

• A decrease in consumer demand for luxury items

What does the Consumer Price Index (CPI) measure?

• The average change in prices paid by urban consumers for a market basket of goods and services

• The total value of goods produced in a country

• The change in prices of imported goods

• The average income of consumers in urban areas

How does the PCE index differ from the CPI?

• PCE is less accurate than CPI

• PCE is not used by the Federal Reserve

• PCE reflects all consumption items, including those not paid out of pocket by consumers

• PCE includes only food and energy prices

What is one negative effect of inflation?

• Money loses its value over time

• Increased purchasing power

• Higher savings rates

• Decreased cost of living

How can inflation positively affect spending and investment?

• By incentivizing consumers to spend and invest before prices rise further

• By reducing the need for investments

• By decreasing the value of investments

• By encouraging consumers to delay purchases

Which investment is specifically designed to protect against inflation?

• Real estate

• Treasury Inflation-Protected Securities (TIPS)

• Corporate bonds

• Commodities

What is a common strategy to beat inflation through investments?

• Investing in low-interest savings accounts

• Investing in a diversified stock market index fund

• Avoiding all forms of investment

• Holding cash for long periods