18 Questions
What effect does high inflation have on lenders and borrowers?
Lenders benefit while borrowers suffer
What is one way in which expansionary fiscal policy can contribute to high inflation?
Increasing government spending without increasing taxes
How does inflation affect the real return of a lender or investor?
Reduces the real return
What is the Fisher effect related to in the context of inflation and interest rates?
Expectations on inflation determining nominal interest rates
Why do borrowers benefit when inflation is high?
They have to pay back loans with devalued currency
How does printing a large quantity of money for government services impact inflation?
It devalues the local currency and leads to inflation
What causes inflation according to the text?
Excessive growth of the money supply compared to real GDP growth
What is the impact of an inflationary gap?
Actual unemployment lower than the natural rate
What is the long-run equilibrium in the economy according to the text?
Intersection of short-run aggregate supply, long-run aggregate supply, and aggregate demand
Why is allowing the short-run aggregate supply to adjust towards full-employment problematic?
Slow adjustment due to sticky wages
What characterizes an economy with unnaturally low unemployment according to the text?
Actual output above potential output
How does an inflationary gap affect the demand-pull inflation according to the text?
Employees demanding higher wages due to extra hours worked
What will happen if the money supply increases faster than the growth in real output?
Inflation will occur
According to the economists, what is the reason for prices to stay the same when money supply increases at the same rate as real output?
Consumers expect inflation
In the context of inflation, what is a major problem associated with high and volatile rates of inflation?
Price signals misinterpretation
What is the effect of an increase in real demand for goods and services on prices according to the text?
Prices go up
Why does low and stable inflation not cost much to consumers according to the text?
Consumers can make long-term plans with certainty
What do economists believe is the reason behind inflation occurring in a depressed economy?
Too much money chasing too few goods
Test your knowledge on inflation, its causes, effects, and ways to mitigate its impact on the economy. Explore concepts like wealth redistribution, indexing contracts to inflation, and its influence on long-term financial planning.
Make Your Own Quizzes and Flashcards
Convert your notes into interactive study material.
Get started for free
