Inflation 2

The diagram shows the demand for and the supply of bread.

A maximum price P1 is fixed by the government. What is likely to be the immediate result of this?

• a movement of the demand curve to the right

• a movement of the supply curve to the right

• a shortage of bread

• a surplus of bread

In trying to achieve one of its aims a government may make it difficult to achieve another aim.

What is an example of this conflict?

• Achieving a more even distribution of income may prevent a rise in the average standard of living.

• Achieving an increase in economic growth may prevent full employment.

• Achieving full employment may prevent stable prices.

• Achieving stable prices may prevent a current account surplus on the balance of payments.

What is meant by deflation?

• a fall in the general price level

• a fall in the international value of a currency

• a fall in the rate of inflation

• a fall in the real value of money

What is the change in GDP per head, after taking account of price increases (real change), between 2000 and 2013?

• from $15 to $125

• from $1250 to $1333

• from $1333 to $1250

• from $1333 to $1500

What is included in the calculation of a consumer prices index (CPI)?

• the price of a basket of goods and services

• the price of exports and the price of imports

• the value of the currency on international markets

• the wages of consumers

What determines the weights in the consumer prices index (CPI)?

• the average income received by the various households

• the average increase in the prices of the different goods

• the proportion of income spent by the average household on particular goods

• the proportion of income that the average household saves

What is most likely to decrease when employment increases?

• economic growth

• government welfare payments

• the price level

• the standard of living

Which policy aims to maintain low inflation over a period of time?

• imposing a minimum wage to be paid to workers

• reducing interest rates to encourage borrowing

• restricting the supply of money through the central bank

• writing off the debts of low-income countries

What, when increased, will help a government to reduce the rate of inflation?

• budget deficit

• consumer spending

• income tax

• pensions

A finance minister reported that the economy was experiencing inflation and economic growth.

What would be evidence that both of these had occurred?

• increased exports and increased output

• increased imports and increased income tax

• increased interest rates and increased net migration

• increased prices and increased employment