Worksheets3.3 - INFLATION
Total questions: 20
Worksheet time: 10mins
What does the Consumer Price Index (CPI) primarily measure?
Interest rate changes
The inflation rate using a basket of consumer goods
Business profitability
Currency exchange rates
What is a limitation of using the CPI to measure inflation?
It includes global trade data
It accounts for every household’s consumption pattern
It uses a fixed basket that may not reflect all consumer habits
It adjusts for income tax changes
Which of the following best explains demand-pull inflation?
A fall in consumer confidence
An increase in interest rates
Excess demand outstripping supply
Government regulation on imports
Cost-push inflation is primarily caused by:
Falling consumer demand
Increased costs of production inputs
Tax cuts on businesses
Higher foreign investment
What is one impact of high inflation on savers?
Increases the real value of savings
Reduces uncertainty for long-term planning
Erodes the purchasing power of savings
Guarantees higher interest rates
How does inflation affect export competitiveness?
Makes exports cheaper and more competitive
Increases the value of the domestic currency
Makes domestic goods more expensive abroad
Reduces trade tariffs
One reason businesses dislike high inflation is because:
Prices become more stable
Wage demands typically fall
It creates uncertainty in planning and costs
Consumer demand increases
What is deflation?
A decrease in tax rates
A reduction in the overall level of prices in an economy
An increase in unemployment
A temporary rise in interest rates
What causes deflation?
A surge in consumer spending
Expansionary fiscal policy
A fall in aggregate demand or increase in aggregate supply
High inflation expectations
Which of the following is a likely consequence of deflation?
Encouragement of current spending
Lower unemployment rates
Consumers delaying purchases
Increased foreign investment
What is disinflation?
Negative inflation
Rising prices at a decreasing rate
A complete price freeze
Hyperinflation
In a cost-push inflation scenario, which of the following is likely to increase first?
Worker productivity
Input costs like raw materials
Export subsidies
Interest rates
One ethical concern associated with high inflation is:
Equal benefit to all households
Greater wealth equality
Disproportionate effects on low-income earners
Reduced consumer choice
How can inflation contribute to inefficient resource allocation?
Businesses can predict costs more easily
Prices send distorted signals to producers and consumers
Interest rates stabilize automatically
Governments can plan budgets more accurately
Which business behavior best illustrates demand-pull inflation?
Zara increasing prices due to a fashion surge in demand
Nike cutting prices to clear inventory
H&M facing higher import tariffs
Target reducing its labor force
What is one policy reason why central banks aim for a low and stable inflation rate?
To support devaluation
To promote economic uncertainty
To maintain consumer and investor confidence
To maximize imports
Why might deflation be a problem for borrowers?
Debt becomes easier to repay
Real value of debt increases
Interest rates drop to zero
It improves credit ratings
What does a weighted price index account for in inflation calculations?
GDP per capita
Unemployment figures
The relative importance of items in consumer spending
Income distribution
What might a business do to protect itself from inflation?
Cut employee wages
Fix long-term contracts at current prices
Eliminate advertising budgets
Reduce supply chain complexity
How can inflation disrupt sustainability goals for a business?
Encourages long-term planning
Increases operating certainty
Pressures companies to prioritize short-term profits over eco-friendly practices
Encourages ethical business conduct
