Inflation & Deflation Assessment

What is inflation?

• A decrease in the general price level of goods and services

• An increase in the general price level of goods and services

• An increase in the supply of goods and services

• A decrease in the supply of goods and services

Which of the following is a primary cause of inflation?

• A decrease in consumer demand

• Increased productivity

• An increase in the money supply

• A decrease in government spending

How does deflation impact consumer behavior?

• Encourages immediate spending

• Leads to increased borrowing

• Promotes saving and delaying purchases

• Boosts investment in the stock market

What is a potential negative effect of prolonged deflation?

• Increased consumer spending

• Higher employment rates

• Economic stagnation

• Rising wages

Which economic indicator is commonly used to measure inflation?

• Gross Domestic Product (GDP)

• Consumer Price Index (CPI)

• Unemployment Rate

• Balance of Trade

What happens to the purchasing power of money during inflation?

• It remains unchanged

• It increases

• It decreases

• It becomes unpredictable

Which of the following is a consequence of hyperinflation?

• Stable currency value

• Increased foreign investment

• Rapid devaluation of the currency

• Decreased cost of living

What is one way central banks can combat inflation?

• Decreasing interest rates

• Increasing the money supply

• Raising interest rates

• Reducing taxes

How can inflation affect interest rates?

• Inflation leads to lower interest rates

• Inflation has no impact on interest rates

• Inflation causes interest rates to rise

• Inflation causes interest rates to become negative

Which of the following can be a cause of deflation?

• Rapid increase in the money supply

• Decrease in consumer demand

• Increase in government spending

• Rising commodity prices