AnswersFL-2102340-Economics with Financial Literacy Teacher DirectedInflation and Stagflation

Inflation and Stagflation Answers

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1
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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
2
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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.
3

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.
4

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

A
a decrease in prices for computers and computer accessories.
B
an increase in prices for computers and computer accessories.
C
a decrease in prices for computers, but not computer accessories.
D
an increase in prices for computers, but not computer accessories.
5

When government intervention makes currency worthless, this condition is called

A
deflation.
B
hyperinflation.
C
cost-push inflation.
D
demand-pull inflation.
6

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.
7

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.
8

Demand-pull inflation happens when the demand for goods

A
remains very low.
B
shifts up and down.
C
matches the supply.
D
increases.
9

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.
10

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.
11

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.
12

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.
13

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

A
US Census Bureau
B
US Bureau of Labor Statistics
C
US Department of Commerce
D
US Department of the Treasury
14

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.
15

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.
16

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.

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