Inflation

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1. A possible concern for businesses if deflation occurs is that:

  • Raw material will become more expensive
  • Consumers may postpone spending decisions
  • The value of stocks will rise
  • Banks will increase interest rates
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2. Low inflation is also know as…

  • price convergence
  • Price instability
  • Price control
  • Recession
  • Price deflation
  • Price stability
  • Inflation

3. Inflation is widely regarded as an important issue for macroeconomic policy-makers because inflation…

  • Allows producers to make higher profits each year
  • Allows savers to improve their standard of living
  • Can cause wider economic costs including slower growth
  • Increases the return on business investments

4. Price increases may lead to higher wage demand as people try to maintain their living standards. This is know as the:

  • Wage- price spiral
  • Index-linking approach
  • Hyperinflation problem
  • Deflationary cycle

5. Deflation describes a period in the economy when

  • The rate of growth in prices is slowing
  • The average level of prices is falling
  • The value of an exchange rate is falling
  • Economic growth is falling
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