Inflation Rate Calculation Quiz
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Questions and Answers

What is the fundamental truth about the economy highlighted in the text?

  • The economy is very unpredictable. (correct)
  • The economy is primarily affected by interest rates.
  • The economy is influenced mainly by global unrest.
  • The economy is very predictable.

    • Deflation occurs when:

  • Prices of goods and services rise over time.
  • The economy experiences political unrest.
  • The supply of goods matches the demand in an economy. (correct)
  • The purchasing power of money decreases.

    • What is the impact of inflation on purchasing power?

  • It decreases the purchasing power over time. (correct)
  • It has no effect on purchasing power.
  • It stabilizes the purchasing power.
  • It increases the purchasing power over time.

    • Which factor influences personal financial planning according to the text?

    <p>Changing needs over the life cycle</p> Signup and view all the answers

    What does inflation refer to?

    <p>An increase in prices over time.</p> Signup and view all the answers

    How does inflation impact the Consumer Price Index (CPI)?

    <p>Inflation and CPI move in the same direction.</p> Signup and view all the answers

    What is the consensus view among economists regarding sustained inflation?

    <p>It occurs when a nation's money supply growth outpaces economic growth.</p> Signup and view all the answers

    Which of the following is considered a primary consumer need in the Consumer Price Index (CPI)?

    <p>Transportation, food, and medical care</p> Signup and view all the answers

    In the provided scenario with John and his groceries, what was the inflation rate when the price increased from $200 to $210?

    <p>5%</p> Signup and view all the answers

    How does inflation impact the purchasing power of the common public?

    <p>It decreases purchasing power.</p> Signup and view all the answers

    What does CPI stand for in the context of measuring inflation?

    <p>Consumer Price Index</p> Signup and view all the answers

    What factor leads to sustained inflation?

    <p>Increase in money supply growth compared to economic growth</p> Signup and view all the answers

    What is the formula for calculating inflation rate as shown in the text?

    <p>Dividing the difference between the current and previous price levels by the previous price level</p> Signup and view all the answers

    Based on the text, when central banks set interest rates at a high level, what is the expected impact on borrowing?

    <p>Borrowing costs rise</p> Signup and view all the answers

    How does inflation affect consumer purchasing power?

    <p>Reduces consumer purchasing power</p> Signup and view all the answers

    In the context of economic cycles, what characterizes a period of recession?

    <p>Decreasing employment levels</p> Signup and view all the answers

    What is the purpose of the Consumer Price Index (CPI) mentioned in the text?

    <p>To track changes in consumer prices over time</p> Signup and view all the answers

    According to the relationship mentioned in the text, what tends to happen to interest rates as inflation rises?

    <p>Interest rates tend to rise</p> Signup and view all the answers

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