Inflation, Deflation, and Price Stability

What is inflation?

• A) A decrease in prices, increasing purchasing power.

• B) A general increase in prices, reducing purchasing power.

• C) When prices stay relatively constant over time.

• D) The amount of goods or services that one unit of money can buy.

What is purchasing power?

• A) A general increase in prices, reducing purchasing power.

• B) A general decrease in prices, increasing purchasing power.

• C) When prices stay relatively constant over time.

• D) The amount of goods or services that one unit of money can buy.

Rising prices impact your ability to buy goods and services by:

• Increasing your purchasing power

• Decreasing your purchasing power

• Having no effect on your purchasing power

• Improving your ability to save

Reflect on why falling prices might cause people to delay purchases.

• Because they expect prices to fall further

• Because they have no money

• Because they don't need the product

• Because they are waiting for a sale

Central banks try to control inflation by:

• Increasing interest rates

• Decreasing interest rates

• Printing more money

• Reducing government spending

A country might want to aim for price stability rather than high inflation or deflation because:

• it ensures economic predictability and growth.

• it leads to higher unemployment rates.

• it causes rapid changes in currency value.

• it results in increased government debt.

Reflect on how predictable prices can help create a stable economy.

• Predictable prices reduce uncertainty and encourage investment.

• Predictable prices lead to higher inflation rates.

• Predictable prices cause economic instability.

• Predictable prices discourage consumer spending.