Gr 12 Math Lit: Ch 1.8 Inflation

What is the term used to describe the rate at which the general level of prices for goods and services rises?

Inflation (correct)
Deflation
GDP Growth
Inflation Rate

How is the inflation rate calculated?

By subtracting the previous price from the current price
(Current Price - Previous Price) / Previous Price × 100% (correct)
By dividing the current price by the previous price
By multiplying the current price by the previous price

What is the effect of inflation on savings and investments?

It has no effect on the value of money saved or invested
It erodes the value of money saved or invested if the return is lower than the inflation rate (correct)
It always leads to a higher return on savings and investments
It increases the value of money saved or invested

Why might salaries and wages need to be adjusted during a period of inflation?

To maintain the same standard of living (D) Signup and view all the answers

What does a rising inflation graph indicate?

An increase in prices (A) Signup and view all the answers

In what situation might employees use inflation rates to negotiate salary increases?

During salary negotiations (D) Signup and view all the answers

What type of inflation occurs when the demand for goods and services exceeds supply?

Demand-Pull Inflation (B) Signup and view all the answers

Why might businesses adjust prices of goods and services during a period of inflation?

To cover increased costs and maintain profitability (C) Signup and view all the answers

What is the primary cause of cost-push inflation?

Higher wages and raw material prices (B) Signup and view all the answers

What is built-in inflation linked to?

Adaptive expectations (C) Signup and view all the answers

Why is it important to adjust for inflation in financial planning?

To maintain the purchasing power of money (D) Signup and view all the answers

How can individuals manage the impact of inflation on their personal finances?

By monitoring and adjusting expenses and income (B) Signup and view all the answers

What is a key strategy for ensuring that savings and investments maintain their value in an inflationary environment?

Investing in assets that offer returns higher than the inflation rate (A) Signup and view all the answers

Which type of inflation results from increased costs of production, such as higher wages and raw material prices?

Cost-Push Inflation (D) Signup and view all the answers

What is the purpose of adjusting for inflation in financial planning?

To maintain the purchasing power of money (C) Signup and view all the answers

Which of the following strategies can help individuals manage the impact of inflation on their personal finances?

Monitoring and managing expenses (A) Signup and view all the answers

Why is it important to choose investment options that offer returns higher than the inflation rate?

To preserve the purchasing power of money (D) Signup and view all the answers

What is built-in inflation linked to, in terms of expectations?

Adaptive expectations (D) Signup and view all the answers

What is the primary consequence of inflation on an individual's purchasing power?

It decreases their ability to buy goods and services (C) Signup and view all the answers

What is the purpose of adjusting salaries and wages during a period of inflation?

To maintain the same standard of living (D) Signup and view all the answers

What does a falling inflation graph typically indicate?

A decrease in the rate of price increases (B) Signup and view all the answers

What is a common application of inflation rates in business?

To adjust the prices of goods and services (B) Signup and view all the answers

What is the term for the erosion of the value of money saved or invested?

Inflation (A) Signup and view all the answers

What is a characteristic of demand-pull inflation?

A mismatch between demand and supply (D) Signup and view all the answers

What is the purpose of understanding inflation trends?

To make informed financial decisions (A) Signup and view all the answers

What is the relationship between inflation and the price level of a basket of goods and services?

Inflation causes an increase in the price level (C) Signup and view all the answers

What is the underlying mechanism that enables businesses to pass on increased costs to consumers, leading to cost-push inflation?

Adaptive expectations (A) Signup and view all the answers

What is the primary consequence of inflation on the overall economy?

Reduced purchasing power and decreased value of money (D) Signup and view all the answers

Which of the following best describes the concept of inflation?

A sustained increase in the general level of prices for goods and services (C) Signup and view all the answers

Which of the following is a consequence of not adjusting for inflation in financial planning?

Erosion of purchasing power (A) Signup and view all the answers

What happens to the value of savings if the inflation rate is higher than the interest rate?

The value of savings decreases (D) Signup and view all the answers

What is the primary reason why individuals need to adjust their income to keep pace with inflation?

To maintain a fixed standard of living (C) Signup and view all the answers

Why might businesses adjust their production levels during a period of inflation?

To keep up with increased demand (D) Signup and view all the answers

Which of the following strategies is NOT a way to manage the impact of inflation on personal finances?

Increasing debt levels (B) Signup and view all the answers

What is the underlying assumption behind built-in inflation?

That consumers will always expect higher prices (A) Signup and view all the answers

What is the effect of inflation on fixed income groups, such as pensioners?

Their purchasing power decreases (B) Signup and view all the answers

Which of the following is a characteristic of a high-inflation economy?

Uncertainty and volatility (B) Signup and view all the answers

What is the purpose of indexing financial instruments, such as loans and savings accounts, to inflation?

To maintain the purchasing power of the principal amount (C) Signup and view all the answers

Which of the following is a strategy that central banks can use to control inflation?

Raising the reserve requirement (D) Signup and view all the answers