AnswersAcademy- Financial Algebra A 27Compound Interest

Inflation and Stagflation Answers

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1
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Typically, high inflation is a sign of

A
a healthy economy because it results from a fall in production costs.
B
a healthy economy because it results from a rise in consumer interest.
C
a struggling economy because wages cannot keep up with the increase in prices.
D
a struggling economy because it results from a fall in consumer interest.
2
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Why is gasoline weighted more heavily than tomatoes in a calculation of the annual inflation rate in the United States?

A
Gasoline costs more to produce and purchase than tomatoes.
B
Gasoline is imported from other nations at a higher rate than tomatoes.
C
Americans purchase many more boxes of tomatoes than barrels of gasoline.
D
Americans spend more money on gasoline than tomatoes, on average.
3

The equation calculates an annual rate in economics.What rate does the equation calculate?

Question illustration
A
employment rate
B
inflation rate
C
demand rate
D
supply rate
4

What is one consequence of stagflation?

A
The economy drastically slows down as money loses its buying power.
B
Producers cannot keep up with consumer interest and raise their prices.
C
There are not enough workers to meet the rising level of production.
D
Demand is too high and people spend more money than they should.
5

Which scenario is an example of demand-pull inflation?

A
Consumers have more money to buy cars, and the prices of cars and car accessories rise as a result.
B
An increase in workers’ wages raises the production cost of cars, and car prices rise as a result.
C
The demand for cars falls as consumers have less disposable income, and car prices fall as a result.
D
A government bailout helps car manufacturers lower their costs, and car prices fall as a result.
6

Stagflation occurs when high inflation combines with

A
high unemployment and a low level of production.
B
low unemployment and a high level of production.
C
a drop in buying power and a rise in workers’ wages.
D
a rise in buying power and a drop in workers’ wages.
7

The inflationary spiral explains the causes and effects of high inflation. The spiral usually begins with an increase in demand. What is the direct effect of this increase?

A
Producers raise prices to continue to make a profit.
B
The government prints more money, lowering the value of money.
C
Workers negotiate with employers to receive more money.
D
Consumers need higher wages to keep up with rising prices.
8

Which scenario is an example of cost-push inflation?

A
Consumers have more money to buy cars, and the prices of cars and car parts rise as a result.
B
An increase in workers’ wages raises the production cost of cars, and car prices rise as a result.
C
The demand for cars falls as consumers have less disposable income, and car prices fall as a result.
D
A government bailout helps car manufacturers lower their costs, and car prices fall as a result.
9

Typically, low inflation is a sign of

A
a healthy economy because it results from a steady rise in demand.
B
a healthy economy because it results from a steady rise in supply.
C
a struggling economy because it results from a steady fall in demand.
D
a struggling economy because it results from a steady fall in supply.
10

[BLANK]

A
lose
B
gain
11

What are the signs of high inflation? Check all that apply.Production begins to fall.Production begins to rise.Interest rates decrease.Interest rates increase.Purchasing power falls.Fewer fixed rate bank loans.

A
Production begins to fall.
B
Production begins to rise.
C
Interest rates decrease.
D
Interest rates increase.
E
Purchasing power falls.
F
Fewer fixed rate bank loans.
12

Which is the best definition of inflation?

A
a gradual decrease in the price of goods and services
B
a gradual increase in the price of goods and services
C
an exponential decrease in the price of goods and services
D
an exponential increase in the price of goods and services
13

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

A
Demand-pull inflation is driven by consumers, while cost-push inflation is driven by producers.
B
Demand-pull inflation is driven by producers, while cost-push inflation is driven by consumers.
C
Demand-pull inflation is driven by the private sector, while cost-push inflation is driven by the government.
D
Demand-pull inflation is driven by the government, while cost-push inflation is driven by the private sector.
14

Hyperinflation can occur when

A
consumers begin purchasing more goods.
B
producers need more money to make and distribute goods.
C
companies raise prices to pass on costs to consumers.
D
the government prints a ton of money in order to pay off its debt.

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