Question

1. When demand pull inflation occurs, then we will observe which of the folllowing:

a. The company will experience a situation known as stagflation

b. there will be an increase in the in the unemployment rate and inflation rate

c. there will be deflation accompanied by an increase in national output

d. there will be a decrease in the unemployment rate in national output

e. there will be a decrease in the unemployment rate and an increase in the inflation rate

2. How is disinflation different from deflation?

a. no difference these two terms can be used interchangeably

b. disinflation involves falling absolute prices, deflation involves falling relative prices

c. disinflation is a slowing of the inflation rate, deflation involves a falling price level

d. disinflation only occurs when the inflation rate is negative, deflation can occur at any time

e. disinflation is a rapid increase in the price level, deflation is a rapid decrease in the price level

3. Assume that the CPI and income values below correspond with the same year (e.g. year 1). Assume that the CPI in Boston is 240.0 and the CPI in New York is 260.0. In this situatuon, which of the following woukd be a true statememt:

a. individuals earning norminal income of $20,000 in Boston would have a higher real income than individuals earning nominal income of $21,000 in New York

b. individuals earning nominal income of $20,000 in Boston would have a higher real income than individuals earning nominal income of $25,000 in New York

c. individuals earning real own income of $10,000 in Boston would have a higher real income than individuals earning a nominal income of $30,000 in New York

d. individuals earning wheeler income of $10,000 in Boston would have a higher real income than individuals earning nominal income of $26,000 in New York

4. Which of the following statements about inflation is correct:

a. unexpected inflation would make lenders better off and borrowers worse off

b. unexpected inflation would make lenders worse off and borrowers better off

c. increases in the inflation rate lead to increases in market interest rates

d. increases in the inflation rate lead to decreases in purchasing power

e. both C and D are correct statements

f. A, C and D are correct statements

g. B, C and D are correct statements

Answer 1

1. Option E

A demand pull inflation is a situation when the AD curve shift to the right increasing inflation and decreasing unemployment.

2. Option C

Disinflation is when inflation rate are gradually falling. Delfation is when price level falls .

3.Option A

We will divide the the earning by the respective CPI. The higher value will have greater real income. Here Boston will have a higher real income.

4. Option B

Unexpected inflation will make lenders worse off as the amount they will receive will have a lower real value than anticipated. Similarly borrowers will have a pay a lesser real value, which makes them better off.

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