Inflation And The Cpi
This quiz will assess your applied understanding of the concept of inflation and the validity of the CPI as a measure of inflation.
Questions and Answers
- 1.
Which is not associated with hyperinflation?
- A.
War or its aftermath
- B.
Rising output in the economy
- C.
The hoarding of goods and speculation
- D.
A halt to the use of money as both a medium of exchange and a standard of value
Correct Answer
B. Rising output in the economyExplanation
Hyperinflation is a rapid and uncontrollable increase in the general price level of goods and services in an economy. It is usually caused by excessive money supply and is often associated with war or its aftermath, hoarding of goods, and a halt to the use of money as both a medium of exchange and a standard of value. However, rising output in the economy is not directly associated with hyperinflation. In fact, increasing output can help stabilize prices and reduce inflationary pressures.Rate this question:
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- 2.
Apple can't supply the market with enough iPad Minis to meet consumer demand. The result is that the retail price of the Mini continues to increase. This is an example of __________.
- A.
System inflation
- B.
Hyperinflation
- C.
Demand-pull inflation
- D.
Cost-push inflation
Correct Answer
C. Demand-pull inflationExplanation
This scenario is an example of demand-pull inflation. Demand-pull inflation occurs when there is an increase in demand for a product or service that exceeds the supply available. In this case, the high consumer demand for iPad Minis is causing the retail price to increase because Apple is unable to supply enough of them to meet the demand.Rate this question:
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- 3.
The cost of steel has risen dramatically, which is making it more expensive to produce automobiles and appliances. Not surprising, GM and GE are just two manufacturers that are passing their increased production costs onto the consumers in the form of higher prices. This is an an example of ___________.
- A.
Deflation
- B.
Cost-push inflation
- C.
Demand-pull inflation
- D.
Market forces
Correct Answer
B. Cost-push inflationExplanation
The given scenario describes cost-push inflation. This type of inflation occurs when there is an increase in the cost of production inputs, such as steel in this case, leading to higher prices for the final goods and services produced. As the cost of steel rises, manufacturers like GM and GE pass on these increased costs to consumers by raising prices for automobiles and appliances. This results in inflationary pressure caused by the increase in production costs.Rate this question:
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- 4.
Interest rates are lower than the rate of inflation. Discuss how these differences in rate will affect consumer saving and spending.
- 5.
An example of ____________ occurs when the purchasing power of money falls so low that consumers begin to buy gold, diamonds and even tulips.
- A.
Destabilization
- B.
Hyperinflation
- C.
Deflation
- D.
Consumer unrest
Correct Answer
B. HyperinflationExplanation
Hyperinflation refers to a situation where the value of money decreases rapidly, leading to a significant increase in prices. In such cases, consumers may lose confidence in the currency and resort to buying assets like gold, diamonds, and tulips, which are seen as more stable stores of value. This behavior is driven by the desire to protect their wealth from the eroding effects of hyperinflation. The given example perfectly describes the phenomenon of hyperinflation and its impact on consumer behavior.Rate this question:
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- 6.
BACKGROUND: The CPI Consumer Price Index represents more than 200 categories of goods and services purchased for consumption. Following are eight major groupings of these categories and representative examples within these categories: · FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks) · HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture) · APPAREL (men's shirts and sweaters, women's dresses, jewelry) · TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance) · MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services) · RECREATION (televisions, toys, pets and pet products, sports equipment, admissions); · EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories); · OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and other personal services, funeral expenses). Answer in the RAVE format Restate the question in the form of a topic sentence Answer all parts completely Vocabulary -- use relevant terms Examples -- include them QUESTION: Is the rise and fall of the CPI an accurate measure of inflation? In your analysis consider whether price increases associated with product enhancements and innovation could impact this index. (e.g.: The price of iPads may go up, but one could argue that the improved features and functions support the price hike.)
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