inflation quiz 1

Question 1

CPI Formula

Answer 1

Value of current market basket/ Value of market basket in base year x 100

Question 2

Inflation formula

Answer 2

year 2 - year 1/ year 1 x 100

Question 3

Demand pull inflation

Answer 3

caused by an increase in DEMAND in an economy.

Question 4

Aggerate demand

Answer 4

TOTAL demand in the economy by all groups (households, firms, government, & export sector)

Question 5

Cost-push inflation

Answer 5

caused by an increase in the prices of the FACTORS OF PRODUCTION. (land, labor, capital, & entrepreneurship)

• main form of cost-push inflation is WAGES (payment of labor)

Question 6

Wage price spiral

Answer 6

increase in wages

Question 7

Imported inflation

Answer 7

Imports ( we also import inflation)

Question 8

Monetarists

Answer 8

A group of economists attribute inflation to an increase in money supply.

Question 9

An increase of money supply causes ____________________

Answer 9

an increase in aggregate demand

Question 10

Consequences of inflation

Answer 10

• Fixed income earners suffer a fall in real income
• prices increase in the domestic economy= prices of goods that a country is exporting will rise
• borrowers gain
• creditors lose out
• looking for better prices
• shops, stores & restaurants change price tags
• rising cost of production cannot be passed on
• employers will fire employees

Question 11

REDUCE demand pull inflation

Answer 11

deflationary fiscal policy (increase tax & reducing government spending)

deflation monetary policy (higher interest rates)

STOP DEMAND

Question 12

REDUCE cost push inflation

Answer 12

regulation to limit the power of trade unions to increase wages.

Government subsidies

Question 13

REDUCE imported inflation

Answer 13

cutting back on imported goods

Question 14

REDUCE inflation due to increase in the money supply.

Answer 14

deflationary monetary policy (higher interest rates and credit squeeze)