Inflation - Practice Quiz

6 Questions | Total Attempts: 534

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Inflation - Practice Quiz

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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 .

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