Inflation MCQ 1

Questions and Answers

It reduces the purchasing power (correct)

It increases the purchasing power

It fluctuates the purchasing power

It has no effect on the purchasing power

Cost-push inflation

Demand-pull inflation (correct)

Supply-side inflation

Monetary inflation

Real interest rate is always higher than the nominal interest rate

Real interest rate is adjusted for inflation, while nominal interest rate is not (correct)

Nominal interest rate is adjusted for inflation, while real interest rate is not

Nominal interest rate is lower than the real interest rate

Cost-push inflation Signup and view all the answers

A gradual increase in the general level of prices Signup and view all the answers

It decreases because the money used to pay back the loan has less value than the money initially borrowed. Signup and view all the answers

Their standard of living decreases because the purchasing power of their income falls. Signup and view all the answers

Because the uncertainty regarding future costs of production increases. Signup and view all the answers

It decreases because the inflation rate is greater than the interest rate. Signup and view all the answers

To maintain their standard of living in the face of rising prices. Signup and view all the answers

Study Notes

A booking was made from August 29th to September 3rd at EasySleep Gaudi Terrace
The booking was made without knowledge of a vital age restriction policy
The age restriction policy states that individuals below 25 are not allowed
This policy was not clearly communicated in the property description
The only mention of the age restriction was found in the house rules
A charge of €283.50 was made to the booker without awareness of the age restriction
The booker is requesting a refund of €283.50 due to misleading advertisement

Inflation is a gradual increase in the general level of prices, resulting in a reduction of the purchasing power of money.

Demand-pull inflation occurs when aggregate demand for goods and services exceeds aggregate supply, leading to excess demand and a subsequent increase in price levels.
Cost-push inflation occurs when an increase in production costs is passed on to consumers in the form of higher prices.

Inflation reduces the purchasing power of money, leading workers to seek wage increases to maintain their standard of living.
Fixed-income earners, such as those on Job Seekers allowance, suffer a reduction in their standard of living due to inflation.
Inflation reduces the burden of debt repayments, as the money used to pay back a loan has less value than the money initially borrowed, making borrowing more attractive when inflation is high.
High inflation discourages investment, as it creates uncertainty about future production costs, making it difficult for new firms to start up or for existing firms to expand.
Inflation reduces the purchasing power of savings if the inflation rate exceeds the interest rate, with the nominal interest rate being the rate before inflation and the real interest rate being the interest rate adjusted for inflation.