Topic Questions (EASY): Price Stability, Inflation

What is disinflation?

a decrease in the price level

a decrease in the rate of inflation

an increase in the purchasing power of money

negative inflation

What is a necessary consequence of inflation in an economy?

Aggregate demand is rising.

Aggregate supply is increasing.

The interest rate is decreasing.

The real value of money is decreasing.

What could reduce the accuracy of the consumer prices index (CPI) as a measure of inflation?

More households participate in the survey.

Retailers provide more accurate price data due to technological advancements.

Households change their consumption patterns.

The basket of goods has its weightings updated more frequently.

Suppose a household’s income increased by 3%, and the rate of inflation was also 3%. Which statement is true?

The household's nominal income and real income both increased by 3%.

The household's nominal income remained unchanged, while its real income increased by 3%.

The household's nominal income increased by 3%, while its real income remained unchanged.

The household's nominal income increased by 3%, while its real income increased by 6%.

Suppose a typical consumer divides their expenditure between bread, meat, milk, and vegetables in the ratio of 4:3:2:1. If during the year, bread's price falls by 10%, the price of meat rises by 20%, and the prices of milk and vegetables increase by 10%, what is the approximate increase in the average price level?

5%

7.3%

10%

12.5%

If an economy experiences increasing raw material costs and a decline in business confidence, how will it affect the economy's total outputs and the price level?

Total outputs may increase or decline and the price level will rise.

Total outputs will fall and the price level may rise or fall.

Total outputs will fall and the price level will fall.

Total outputs will rise and the price level may rise or fall.