WorksheetsUnderstanding Inflation and Economics
Total questions: 20
Worksheet time: 10mins
What real-world observation triggered Nam’s question about inflation?
His savings increased quickly
Prices for essentials like pho, rent, and textbooks rose sharply while his income stayed the same
The SBV reduced the money supply
Vietnam’s GDP fell
What is the key relationship between inflation and purchasing power?
Inflation ↑ → Purchasing Power ↑
Inflation ↓ → Purchasing Power ↓
Inflation ↑ → Purchasing Power ↓
Inflation and purchasing power are unrelated
What does the CPI (Consumer Price Index) measure?
Only food prices in big cities
The price of gold and stocks
The change in price of a fixed basket of goods and services for an average household
The profits of Vietnamese companies
What is the difference between headline inflation and personal inflation in Nam’s case?
Headline inflation reflects his student expenses exactly
Headline inflation is an average, while Nam’s personal inflation is higher due to his spending on essentials
Personal inflation is always lower than headline inflation
Headline inflation excludes housing and food prices
In the official CPI basket, what is TRUE about students like Nam?
They have more “Other Goods & Services” than the average household
Their budget is more diversified across all categories
Over 85% of their spending is on a few essentials like food, housing, and education
They spend mainly on entertainment and travel
Which of the following categories showed one of the highest year-on-year price increases for students in August 2025?
Luxury goods
Housing, electricity, water & fuel
Clothing and fashion
Imported electronics
What are “menu costs” in the context of inflation?
The cost of printing restaurant menus only
The direct costs businesses face when frequently changing listed prices
The cost of food in canteens
The cost students pay for meal plans
What is a key danger of high and unpredictable inflation?
It makes saving money easier
It lowers uncertainty and encourages investment
It creates economic uncertainty and discourages long-term planning
It guarantees higher real returns on deposits
Why do many economists fear deflation more than moderate inflation?
Deflation makes exports too competitive
Deflation always leads to higher wages
Deflation can trigger a vicious spiral of falling prices, falling demand, and rising unemployment
Deflation only affects government debt
In the deflationary spiral described, what is one typical behavior of consumers like Nam?
Borrow more to buy immediately
Delay purchases, expecting prices to fall further
Spend more on luxury goods
Switch all savings into foreign currency
What is the main purpose of an inflation-targeting framework?
To fix all prices in the economy
To publicly commit to an inflation target and anchor expectations
To control only food prices
To guarantee zero inflation every year
Why do policymakers at the SBV deliberately tolerate a small, positive inflation rate?
Because they cannot measure inflation accurately
Because zero inflation would automatically cause a crisis
Because moderate inflation provides a buffer against deflation and supports stable growth
Because inflation only affects rich households
In Vietnam, who formally sets the annual CPI inflation target?
Private banks
The National Assembly and Government
International Monetary Fund (IMF)
Local People’s Committees
What is the main role of the SBV’s Open Market Operations (OMOs)?
To directly set retail lending rates for households
To buy and sell papers/bills to manage liquidity and steer interbank interest rates
To control stock market prices
To regulate supermarket food prices
What is the function of the Reserve Requirement Ratio (RRR)?
It sets the maximum lending rate to students
It fixes the exchange rate of VND
It is the minimum share of deposits banks must keep at the SBV and cannot lend out
It determines tuition fees at public universities
Through which two main mechanisms does inflation act as a “regressive tax” on low-income households?
Higher stock prices and stronger currency
Composition of spending on necessities and limited financial flexibility
Higher luxury consumption and lower savings
Government subsidies and tax cuts
In the renter–landlord case study, why is the landlord an “inflation winner”?
They receive government subsidies
They can raise rent and own a real asset that appreciates, often financed by fixed-rate debt
They are exempt from inflation
Their salary is fixed and low
Why does the government in Vietnam use administered prices and controls on essentials like gasoline and electricity?
To maximize profits for state-owned enterprises
To remove all market signals from the economy
To stabilize key input prices, contain cost-push inflation, and protect households from sharp shocks
To make energy use completely free
What trade-off did the long electricity price freeze create for EVN?
High profits but lower inflation
Lower inflation for consumers but huge financial losses for EVN
Higher inflation and high profits
No impact on EVN’s finances
According to the recommended strategy for Nam, which asset class should be the main engine of long-term growth?
Keeping all money in cash deposits
Gold only
A diversified portfolio of equities (e.g., VN-Index)
100% in speculative crypto assets
