Inflation and Stagflation Flashcards

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Questions and Answers

Which federal agency calculates the Consumer Price Index (CPI)?

US Bureau of Labor Statistics

Stagflation occurs when high inflation combines with what?

high unemployment and a low level of production

Why is gasoline weighted more heavily than tomatoes in a calculation of the annual inflation rate in the United States?

Americans spend more money on gasoline than tomatoes, on average

How does demand-pull inflation differ from cost-push inflation?

Demand-pull inflation is driven by consumers, while cost-push inflation is driven by producers Signup and view all the answers

Which scenario is an example of demand-pull inflation?

Consumers have more money to buy cars, and the prices of cars and car accessories rise as a result Signup and view all the answers

Consumers having more money to purchase computers will most likely result in what?

an increase in prices for computers and computer accessories Signup and view all the answers

Which is an effect of stagflation?

The value of a country's currency drops Signup and view all the answers

Typically, low inflation is a sign of what?

a healthy economy because it results from a steady rise in demand Signup and view all the answers

Which is the best definition of inflation?

a gradual increase in the price of goods and services Signup and view all the answers

Typically, high inflation is a sign of what?

a struggling economy because wages cannot keep up with the increase in prices Signup and view all the answers

What is one consequence of stagflation?

The economy drastically slows down as money loses its buying power Signup and view all the answers

Demand-pull inflation happens when the demand for goods does what?

increases Signup and view all the answers

What are the signs of high inflation? (Check all that apply)

Purchasing power falls Signup and view all the answers

What is the direct effect of an increase in demand in the inflationary spiral?

Producers raise prices to continue to make a profit Signup and view all the answers

Hyperinflation can occur when?

the government prints a ton of money in order to pay off its debt Signup and view all the answers

Which scenario is an example of cost-push inflation?

An increase in workers' wages raises the production cost of cars, and car prices rise as a result Signup and view all the answers

Study Notes

Consumer Price Index (CPI)

Calculated by the US Bureau of Labor Statistics.
Reflects changes in the price level of a basket of consumer goods and services.

Stagflation

Characterized by high inflation, high unemployment, and low production levels.
Leads to a decline in currency value.

Inflation Components

Gasoline is weighted more heavily in inflation calculations than tomatoes due to higher average consumer spending on gasoline.
Demand-pull inflation is driven by increased consumer spending, whereas cost-push inflation originates from rising production costs.

Demand-Pull vs. Cost-Push Inflation

Example of demand-pull: Increased consumer wealth leads to higher car prices.
Example of cost-push: Rising wages increase production costs, leading to higher car prices.

Effects of Inflation

High inflation is indicative of a struggling economy where wages lag behind price increases.
Low inflation is a sign of a healthy economy, reflecting steady demand growth.

Consequences of Stagflation

One major consequence is a drastic slowdown in the economy as purchasing power diminishes.
High inflation signs include falling production, increasing interest rates, decreasing purchasing power, and fewer fixed-rate loans.

Inflationary Spiral

Begins with increased demand, prompting producers to raise prices to maintain profit margins.

Hyperinflation

Can occur when excessive money is printed by governments to manage debt, leading to rapid and out-of-control price increases.

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Description

Test your knowledge on inflation and stagflation with these flashcards. Learn about key concepts such as the Consumer Price Index and the implications of stagflation on the economy. Perfect for students studying economics or anyone interested in financial literacy.