Inflation - Practice Quiz

6 Questions | By Dwessler | Last updated: Mar 22, 2022 | Total Attempts: 639

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Questions and Answers

1.

Refer to the graph below. Assume that the economy is initially at equilibrium at point (a). If there is demand-pull inflation in the economy such that AD1 shifts to AD2 , the long-run AS curve will be
- A.
  
  AS2 .
- B.
  
  AS1 .
- C.
  
  Point (c).
- D.
  
  A vertical line at Q1 .
- E.
  
  A vertical line at Q2 .
2.

Economists generally agree that for sustained inflation to occur, the
- A.
  
  Government must accommodate it by increasing government spending.
- B.
  
  Government must accommodate it by decreasing taxes.
- C.
  
  Federal Reserve must accommodate it by increasing the money supply.
- D.
  
  Federal Reserve must accommodate it by decreasing the money supply.
- E.
  
  Government must accommodate it by decreasing government spending or increasing taxes.
3.

If the government does not react to cost-push inflation with any policy actions, then there is likely to be
- A.
  
  An increase in RGDP.
- B.
  
  A lower unemployment rate.
- C.
  
  An inflation spiral that could become "hyperinflationary."
- D.
  
  A recession.
- E.
  
  Constant price level.
4.

If the economy is operating at potential GDP, an increase in the money supply will lead to
- A.
  
  Stagflation.
- B.
  
  Sustained inflation.
- C.
  
  Demand-pull inflation.
- D.
  
  Cost-push inflation.
- E.
  
  Deflation.
5.

Cost-push inflation is caused by a(n)
- A.
  
  Decrease in government regulation.
- B.
  
  Increase in government spending.
- C.
  
  Decrease in taxes that stimulates new spending.
- D.
  
  Increase in wages that go beyond gains in productivity.
- E.
  
  Increase in investment spending.
6.

Refer to the graph below. Assume that the economy is initially at equilibrium at point (a). If there is demand-pull inflation in the economy such that AD1 shifts to AD2 , then in the long run, the price level will be
- A.
  
  P2 and RDGP will be Q3 .
- B.
  
  P3 and RDGP will be Q1 .
- C.
  
  P1 and RGDP will be Q1 .
- D.
  
  P2 and RDGP will be Q2 .
- E.
  
  P3 and RGDP will be Q3 .