Trivia Quiz On INFLation! Economics Test

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.

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.

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)

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.

Inflation is consider that weakens the local currency and strengthens the foreign currency.

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.

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.

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

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

When demand of goods increase, inflation occurs.

Raw materials and wages increase, which leads to inflation

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.

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.

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.

Mild (creeping) inflation => Walking inflation

Increasing world oil prices leads to higher cost for businesses => cost-push inflation risk

Inflation = ((〖CPI〗_(2015 )- 〖CPI〗_2014 )/〖CPI〗_2014 ) X 100% = 4,3%)

The government revenue increases as it gets more revenue from income tax, sales tax, excise duties, etc.

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%".

"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.

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

Inflation: Value of money ↓
Deflation: Value of money ↑

C refers to mild inflation

Lower interest rates are likely to encourage spending and this can cause demand-pull inflation.

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.

"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.

the CPI in the base year was 27 points lower than in 2019

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.

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.

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.

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.