13 Inflation

Question 1

GDP grows month-over-month; unemployment rate goes down

Answer 1

expansion

Question 2

real GDP is at its highest

Answer 2

peak

Question 3

GDP growth slows/declines

Answer 3

contraction

Question 4

between contraction + expansion; GDP recovers

Answer 4

trough

Question 5

general increase in prices, or decrease in money’s purchasing power

Answer 5

inflation

Question 6

caused by presence of too much money

Answer 6

inflation

Question 7

caused by excessive demand, increase in producers’ per unit cost (inc. in price of input)

Answer 7

inflation

Question 8

aggregate demand > aggregate supply

Answer 8

demand-pull

Question 9

profligate government spending

Answer 9

demand-pull

Question 10

debt monetization (gov’t budget deficit)

Answer 10

demand-pull

Question 11

investments are high (new business/expansion of business)

Answer 11

demand-pull

Question 12

interest rates are low (borrow more, buy more)

Answer 12

demand-pull

Question 13

lowering taxes (more disposable income)

Answer 13

demand-pull

Question 14

increase in price of input; producers face increasing operating costs

Answer 14

cost-push

Question 15

how producers are affected by inflation

Answer 15

• consumer prices increase while wages paid to employees relatively stable
• allows producers to experience higher profits

Question 16

how borrowers are affected by inflation

Answer 16

value of borrower’s debt is reduced

Question 17

how lenders are affected by inflation

Answer 17

hurt as the money they loaned will not be repaid with money that is not worth as much

Question 18

how savers are affected by inflation

Answer 18

inflation erodes purchasing power of savings and other forms of financial wealth

Question 19

real income decreased

Answer 19

effects of inflation

Question 20

how employees are affected by inflation

Answer 20

lose their jobs

Question 21

refers to fixed set of consumer products and services valued on annual basis

Answer 21

representative basket of goods

Question 22

used to track inflation in a spec. market/country

Answer 22

representative basket of goods

Question 23

represents overall price of goods and services

Answer 23

price index

Question 24

measures cost of rep basket of goods and services bought by typical firm

Answer 24

producer price index

Question 25

measures cost of rep basket of goods and services bought by typical customer

Answer 25

customer price index

Question 26

headline inflation

Answer 26

inflation figure from CPI

Question 27

inflation figure adjusted for seasonality and for fluctuating elements of food + energy prices

Answer 27

core inflation

Question 28

formula for CPI

Answer 28

[quantity current x price current]/[quantity base x price base] x 100

Question 29

formula for inflation rate

Answer 29

[CPI current - CPI previous/CPI previous] x 100