Econ Review- Chapter 6

The amount of goods and/or services that a set amount of money can buy is called

• inflation.

• purchasing power.

• Consumer Price Index.

• base period.

Answer explanation

Remember that people's purchasing power (for say $100) is generally falling over time as costs go up and the value of money therefore falls.

What measures the changes in the prices of commonly bought goods and services from one year to another?

• inflation.

• purchasing power.

• Consumer Price Index.

• base period.

Answer explanation

Although most changes in prices involve things getting more expensive over time (inflation), not all price changes will move in this direction. The Consumer Price Index (CPI) looks at the cost of a fixed set of goods and services over time.

The rise in prices of most goods and services is called

• inflation.

• purchasing power.

• Consumer Price Index.

• base period.

What term describes a type of inflation in which "too much money is chasing too few goods"?

• purchasing power

• base period

• demand-pull

• cost-push

Answer explanation

Demand-Pull inflation occurs when there is too much demand and not enough supply to meet that demand.

What's the term for inflation that results when increased production expenses create higher prices?

• purchasing power

• Consumer Price Index

• demand-pull

• cost-push

Answer explanation

If producers have to pay more for workers or other resource costs this reduces their ability to make profits. Producers will often pass those costs on to consumers in the form of higher prices. This is "cost-push" inflation.

A time that has an index number of 100.

• inflation

• Consumer Price Index

• base period

• cost-push

Answer explanation

The base period is generally a year. Inflation is measured by comparing the prices of a set of goods and services from one year (the base period) to another year (maybe 2023).

Which group of people feels the impact of high inflation the most?

• Wealthy Americans

• Women

• People with less money or fixed incomes

• Borrowers

Answer explanation

People with less money have less ability to pay for their basic needs if the costs of those things (e.g. heating oil or food) goes up a lot.

Of the following groups of people, who benefits from high inflation?

• Borrowers

• Savers

• Lenders

• Spenders

Answer explanation

Borrowers benefit from high inflation because the value of the money they're repaying isn't worth as much as when they borrowed the money. Since the money is easier to come by, it's easier to pay back the loan..

Of the following groups, who gets hurt by inflation?

• Savers

• Borrowers

• Large Corporations

Answer explanation

Savers are not going to get enough in interest (from banks) to offset high inflation. They may, for example, get only 1% interest from the bank while inflation is at 6%. This means that after one year, they've lost $5 for every $100 they saved.

What's the term for a decrease in prices from one period to another?

• inflation

• stagflation

• deflation

• hyperinflation