Inflation and Deflation

Front

What is inflation?

Back

An ongoing rise in all prices throughout the entire economy for a long period of time

Answer explanation

Inflation is an ongoing rise in all prices throughout the entire economy for a long period of time.

Front

How is inflation measured?

Back

By comparing the prices of a 'basket of goods' over time

Answer explanation

Inflation is measured by comparing the prices of a 'basket of goods' over time. This method calculates the average price change for all goods and services.

Front

What are the common effects of inflation on market economies?

Back

Encourages investment and reduces unemployment

Answer explanation

Inflation encourages investment and reduces unemployment.

Front

What is the approximate average inflation rate in America since the 1990s? Options: 8%, 5%, 3.8%, 1%

Back

3.8%

Answer explanation

The approximate average inflation rate in America since the 1990s is 3.8%. This is the correct choice.

Front

What is the term used for inflation rates less than 5% per year?

Back

Creeping Inflation

Answer explanation

Creeping inflation refers to inflation rates less than 5% per year. It is the correct term for this scenario.

Front

What is the term used for inflation rates between 20% to 100-300% per year?

Back

Galloping Inflation

Answer explanation

Galloping inflation refers to inflation rates between 20% to 100-300% per year. It is the correct choice because it accurately describes the given range of inflation rates.

Front

What is the term used for negative inflation?

Back

Deflation

Answer explanation

Deflation is the term used for negative inflation. It refers to a decrease in the general price level of goods and services, resulting in the increase in the purchasing power of money.

Front

What is the measurement reflecting the 'weighted' average change of prices over any given period of time for the 'market basket' of goods and services typical to households, firms, or government organizations?

Back

Consumer Price Index

Answer explanation

The Consumer Price Index (CPI) reflects the 'weighted' average change of prices over time for the 'market basket' of goods and services typical to households, firms, or government organizations.

Front

What is the positive effect of inflation related to investment?

Back

Encourages investment and reduces unemployment

Answer explanation

Inflation encourages investment and reduces unemployment.

Front

What is the negative effect of inflation related to income inequality?

Back

Increases income inequality and discourages private investment

Answer explanation

Inflation increases income inequality and discourages private investment.