Trivia Quiz On Inflation! Economics Test

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Trivia Quiz On Inflation! Economics Test - Quiz


Inflation is the state in which a given country's currency loses its values as common commodities rise. There are four types of inflation, which include creeping, walking, galloping, and hyperinflation. The difference comes in how high the prices for the commodity price within a given time frame. Do you know some of the dangers of inflation? Take the quiz and learn more about this economic condition.


Questions and Answers
  • 1. 

    Inflation occurs when aggregate supply is ___

    • A.

      More than aggregate demand

    • B.

      Less than aggregate demand

    • C.

      Equal to aggregate demand

    • D.

      None of these

    Correct Answer
    B. Less than aggregate demand
    Explanation
    Inflation occurs when aggregate supply is less than aggregate demand. This means that the economy is producing less goods and services than what consumers are demanding, leading to an increase in prices. When supply is unable to meet demand, sellers have the ability to raise prices, resulting in inflation.

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  • 2. 

    Deflation is a situation in which ___

    • A.

      The value of money is falling

    • B.

      The price of goods is increasing

    • C.

      The value of money is increasing

    • D.

      The price level is stagnant

    Correct Answer
    C. The value of money is increasing
    Explanation
    Inflation: Value of money ↓
    Deflation: Value of money ↑

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  • 3. 

    Fill in the blank: Inflation (except mild inflation) and deflation can result in ___ stage and negative growth in economic activity.

    • A.

      Expansion

    • B.

      Peak

    • C.

      Recession

    • D.

      Depression

    Correct Answer
    C. Recession
    Explanation
    Inflation (except mild inflation) and deflation causes an overall negative effect on the country’s economic activity thereby affecting the country’s economic and financial wellbeing -> Recession

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  • 4. 

    ___ is when prices rise 3% a year or less.

    • A.

      Walking Inflation

    • B.

      Galloping Inflation

    • C.

      Hyperinflation

    • D.

      Creeping inflation

    Correct Answer
    D. Creeping inflation
    Explanation
    Creeping inflation is when prices rise 3% a year or less. This term is used to describe a slow and gradual increase in prices over time. It is considered to be a mild form of inflation compared to other types like galloping or hyperinflation. In creeping inflation, the rise in prices is relatively stable and manageable, allowing for better economic planning and stability.

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  • 5. 

    In four types of inflation we have learned, what type of inflation is the most extreme?

    • A.

      Creeping inflation

    • B.

      Walking inflation

    • C.

      Galloping inflation

    • D.

      Hyperinflation

    Correct Answer
    D. Hyperinflation
    Explanation
    Hyperinflation is a devastating scenario in which inflation rises rapidly out of control, usually more than 50% per month ( the highest percentage in 4 types of inflation)

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  • 6. 

    Mild (creeping) inflation is harmful to the economy and drives customers to buy more than needed to avoid higher prices.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Mild (creeping) inflation => Walking inflation

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  • 7. 

    What type of inflation is the most popular?

    • A.

      Creeping inflation

    • B.

      Walking inflation

    • C.

      Galloping inflation

    • D.

      Hyperinflation

    Correct Answer
    A. Creeping inflation
    Explanation
    Creeping (mild) inflation is usually the aim of the central bank and balanced to maintain economic growth.

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  • 8. 

    Which one is considered another name of “Hyperinflation’’?

    • A.

      Run-away inflation

    • B.

      Run-on inflation

    • C.

      Run-out inflation

    • D.

      Run-up inflation

    Correct Answer
    A. Run-away inflation
    Explanation
    "Run-away inflation" is considered another name for "Hyperinflation" because it accurately describes the rapid and uncontrollable increase in prices that occurs during hyperinflation. The term "run-away" implies that the inflation is out of control and running away from normal levels, which is a characteristic of hyperinflation.

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  • 9. 

    Moderate inflation is the general term including some main types of inflation. What are they?

    • A.

      Mild inflation and Galloping inflation

    • B.

      Walking inflation and Hyperinflation

    • C.

      Run-away inflation and Galloping inflation

    • D.

      Walking inflation and Mild inflation

    Correct Answer
    D. Walking inflation and Mild inflation
    Explanation
    The correct answer is Walking inflation and Mild inflation. Moderate inflation refers to a moderate increase in the overall price level in an economy. Walking inflation is a type of moderate inflation where prices rise gradually but steadily over time. Mild inflation, on the other hand, is another type of moderate inflation characterized by a low and stable increase in prices. Both walking inflation and mild inflation fall under the category of moderate inflation, making them the main types mentioned in the question.

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  • 10. 

    Which of the following feature does not refer to “Hyperinflation’’?

    • A.

      Prices rise above 50% a month

    • B.

      Saving becomes worthless

    • C.

      People tend to buy goods to beat higher future prices

    • D.

      The concept of inflation becomes meaningless

    Correct Answer
    C. People tend to buy goods to beat higher future prices
    Explanation
    C refers to mild inflation

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  • 11. 

    Why “Walking inflation’’ seems to be more harmful than “Mild inflation”?

    • A.

      It could immediately lead to some severe social problems such as crime and unemployment.

    • B.

      It heats up too fast so that the government should control it before it turns into galloping inflation.

    • C.

      It will soon force consumers to spend sacks of money to buy daily commodities as their prices increase uncontrollably.

    • D.

      It may consequently lead to a serious disruption of whole economy.

    Correct Answer
    B. It heats up too fast so that the government should control it before it turns into galloping inflation.
    Explanation
    "Walking inflation" is described as heating up too fast, which implies that prices are increasing rapidly. If left unchecked, this can lead to galloping inflation, which is even more harmful. The government needs to control walking inflation before it escalates into galloping inflation, as the latter can have severe consequences for the economy, such as causing social problems like crime and unemployment, forcing consumers to spend large amounts of money on daily commodities, and disrupting the entire economy.

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  • 12. 

    Which of the following are the reasons for inflation?

    • A.

      Deficit financing

    • B.

      Growth in per capita income

    • C.

      Population growth

    • D.

      All the above

    Correct Answer
    D. All the above
    Explanation
    Inflation can be caused by deficit financing, which refers to the government spending more money than it collects in revenue, leading to an increase in the money supply. Additionally, inflation can occur due to growth in per capita income, as increased income can lead to higher demand and prices for goods and services. Population growth can also contribute to inflation, as a larger population increases the overall demand for goods and services, potentially leading to price increases. Therefore, all of the reasons mentioned above - deficit financing, growth in per capita income, and population growth - can contribute to inflation.

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  • 13. 

    When demand of goods decrease, inflation occurs.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    When demand of goods increase, inflation occurs.

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  • 14. 

    Raw materials and wages increase, which helps to reduce inflation

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Raw materials and wages increase, which leads to inflation

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  • 15. 

    A surge in demand for products and services can cause inflation as consumers are willing to pay more for the product.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    When there is a surge in demand for products and services, consumers are willing to pay more for them. This increased demand can lead to an increase in prices, which is known as inflation. As consumers compete for limited goods and services, businesses can raise their prices to maximize profits. This increase in prices can then lead to a general rise in the overall price level in the economy, causing inflation. Therefore, the statement is true.

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  • 16. 

    Inflation can be caused by natural disasters that drive prices lower.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Inflation can be caused by natural disasters that drive prices higher.

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  • 17. 

    Increasing world oil prices lead to _____

    • A.

      Demand pull inflation risk  

    • B.

      Cost-push inflation risk 

    • C.

      Demand pull and cost-push inflation risk

    • D.

      Built-in

    Correct Answer
    B. Cost-push inflation risk 
    Explanation
    Increasing world oil prices leads to higher cost for businesses => cost-push inflation risk

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  • 18. 

    Demand-pull inflation may be caused by:

    • A.

      An increase in cots 

    • B.

      A reduction in interest rates 

    • C.

      A reduction in government spending 

    • D.

      An outward shift in aggregate supply

    Correct Answer
    B. A reduction in interest rates 
    Explanation
    Lower interest rates are likely to encourage spending and this can cause demand-pull inflation.

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  • 19. 

    The Consumer Price Index (CPI) measures prices for ________ of goods and services in the economy, including food, cars, education, and recreation.

    Correct Answer
    a basket
    Explanation
    The Consumer Price Index (CPI) measures prices for a basket of goods and services in the economy. This means that it takes into account the prices of various items that are commonly purchased by consumers, such as food, cars, education, and recreation. By tracking the prices of these items over time, the CPI provides a measure of inflation and helps to gauge changes in the cost of living for consumers.

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  • 20. 

    If value of the CPI equals 150, the fixed market basket of goods since the base period of time:

    • A.

      Increased by 150%

    • B.

      Decreased 50%

    • C.

      Increased by 50%

    • D.

      Remained the same

    Correct Answer
    C. Increased by 50%
    Explanation
    If the value of the CPI equals 150, it means that the overall price level has increased by 50% since the base period of time. This means that the fixed market basket of goods, which represents a specific set of goods and services, has also increased in price by 50%. Therefore, the correct answer is "Increased by 50%".

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  • 21. 

    What are the problems in measuring CPI?

    • A.

      Introduction of new goods 

    • B.

      Substitution bias

    • C.

      Unmeasured quality change  

    • D.

       All the above

    Correct Answer
    D.  All the above
    Explanation
    The correct answer is "All the above." The problems in measuring CPI include the introduction of new goods, substitution bias, and unmeasured quality change. The introduction of new goods can make it difficult to accurately measure price changes over time. Substitution bias occurs when consumers switch to cheaper alternatives, which may not be properly accounted for in the CPI calculation. Unmeasured quality change refers to improvements in the quality of goods and services that are not reflected in their prices, leading to an inaccurate measure of inflation.

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  • 22. 

    Consumer Price Index (CPI) is a statistical number which shows

    • A.

      Price averages 

    • B.

      Price level of different goods

    • C.

      Retailed prices of all goods

    • D.

      How the economy is behaving

    Correct Answer
    D. How the economy is behaving
    Explanation
    The Consumer Price Index (CPI) is a statistical number that measures changes in the average price level of a basket of goods and services consumed by households. It is used to gauge inflation and assess how the economy is performing. By tracking price changes over time, the CPI provides insights into the behavior of the economy, such as whether prices are rising or falling and the overall rate of inflation.

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  • 23. 

    If the CPI in 2019 is 127, what can you say about the price in 2019 as compared to the base year? Prices were ______

    • A.

      27% lower in the earlier period

    • B.

      27% higher in the earlier period

    • C.

      27% lower in the later period 

    • D.

      27% higher in the later period

    Correct Answer
    A. 27% lower in the earlier period
    Explanation
    the CPI in the base year was 27 points lower than in 2019

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  • 24. 

    The quantity theory of money is the proposition that an increase in the quantity of money brings an equal percentage ________ in the price level in the long run.

    Correct Answer
    increase
    Explanation
    The quantity theory of money states that when there is an increase in the quantity of money in an economy, it will lead to a corresponding increase in the price level in the long run. This means that as more money is introduced into the system, it will result in inflation and higher prices for goods and services. The relationship between the quantity of money and the price level is believed to be proportional, with a percentage increase in the quantity of money leading to an equal percentage increase in the price level.

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  • 25. 

    If the CPI is 93 in 2014 and 97 in 2015, calculate the rate of inflation from 2014 to 2015.

    • A.

      4%

    • B.

      4,3%

    • C.

      4,12%

    • D.

      5,2%

    Correct Answer
    B. 4,3%
    Explanation
    Inflation = ((〖CPI〗_(2015 )- 〖CPI〗_2014 )/〖CPI〗_2014 ) X 100% = 4,3%)

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  • 26. 

    During inflation, the govern­ment revenue decreases.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The government revenue increases as it gets more revenue from income tax, sales tax, excise duties, etc.

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  • 27. 

    Mild inflation promotes economic growth, but runaway inflation obstructs economic growth.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Mild inflation promotes economic growth because it encourages spending and investment. When prices increase slightly, consumers are motivated to make purchases sooner rather than later, which boosts demand. This increased demand leads to higher production and job creation, stimulating economic growth. On the other hand, runaway inflation, which is an extreme and uncontrollable increase in prices, hinders economic growth. It erodes the purchasing power of consumers, reduces investment, and creates uncertainty in the market. Therefore, the statement that mild inflation promotes economic growth while runaway inflation obstructs it is true.

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  • 28. 

    Inflation can weaken or strengthen the power of the currency.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Inflation is consider that weakens the local currency and strengthens the foreign currency.

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  • 29. 

    What are the advantages of moderate inflation:

    • A.

      Enable economic growth

    • B.

      Allow adjustment of real estate

    • C.

      Allow adjustment of price

    • D.

      All the answers above

    Correct Answer
    D. All the answers above
    Explanation
    Moderate inflation has several advantages. Firstly, it enables economic growth by stimulating spending and investment. When prices rise gradually, consumers are encouraged to spend and businesses are motivated to invest in new projects. Secondly, moderate inflation allows for the adjustment of real estate prices. As inflation occurs, the value of properties tends to increase, benefiting homeowners and investors. Lastly, inflation also allows for the adjustment of prices in general. As the cost of goods and services rises, businesses can adjust their prices accordingly, ensuring profitability and sustainability. Therefore, all the given answers are correct in highlighting the advantages of moderate inflation.

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  • 30. 

    ________ interest rates tend to result in more inflation. ________ interest rates tend to lower inflation.

    Correct Answer
    Low
    High
    Explanation
    When interest rates are low, individuals and businesses tend to demand more loans. Each bank loan increases the money supply in a fractional reserve banking system. According to the quantity theory of money, growing money supply increases inflation.

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  • 31. 

     What are the anti-inflation measures:

    • A.

      Monetary policies

    • B.

      Fiscal policies

    • C.

      Public investment management

    • D.

      Printing more money

    • E.

      Control of exports and import

    • F.

      Increasing exchange rate

    • G.

      Enhancement of production capability

    • H.

      Increasing gold price

    • I.

      Devaluing currency

    • J.

      Market management

    • K.

      Social security

    • L.

      Hoarding goods

    Correct Answer(s)
    A. Monetary policies
    B. Fiscal policies
    C. Public investment management
    E. Control of exports and import
    G. Enhancement of production capability
    J. Market management
    K. Social security
    Explanation
    The correct answer includes a combination of measures that can be used to combat inflation. Monetary policies involve actions taken by the central bank to control the money supply and interest rates. Fiscal policies refer to government actions related to taxation and spending. Public investment management involves directing government funds towards projects that stimulate economic growth. Control of exports and imports can help regulate the flow of goods and services in the economy. Enhancement of production capability focuses on increasing the capacity to produce goods and services. Market management refers to interventions in the market to stabilize prices. Social security measures can provide a safety net for individuals affected by inflation.

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  • Current Version
  • Mar 22, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Mar 06, 2020
    Quiz Created by
    Toan Duong
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