AQA A Level Economics: Inflation and Price Level Quiz

What is inflation?

• A temporary increase in the price of a single good

• A sustained increase in the average price level of goods/services in an economy

• A fall in the average price level of goods/services in an economy

• An increase in the average price level of goods/services at a decreasing rate

What is demand pull inflation caused by?

• A fall in productivity

• Excess demand in the economy

• Increased costs of production

• A decrease in money supply

Which of the following is a component of Aggregate Demand (AD)?

• Interest Rates (IR)

• Savings (S)

• Consumption (C)

• Taxation (T)

What does the 'V' represent in Fisher's equation of exchange MV = PQ?

• Value of currency

• Volume of goods

• Velocity of money

• Variation in prices

What is the consequence of inflation for consumers?

• Increase in real income

• Decrease in purchasing power

• Improved international competitiveness

• Higher savings value

What is the term for inflation caused by increased production costs?

• Cost push inflation

• Monetary inflation

• Structural inflation

• Demand pull inflation

What is the impact of inflation on firms?

• Enhances export competitiveness

• Reduces menu costs

• Increases purchasing power

• Creates uncertainty and delays investment

What is the term for a fall in the average price level of goods/services?

• Deflation

• Disinflation

• Stagflation

• Hyperinflation

What does 'adaptive expectations' assume?

• Expectations are based on government forecasts

• Individuals use only current data for expectations

• Individuals base their expectations on past observations

• Expectations are formed randomly

What is a potential trade-off when tackling inflation?

• Increased consumer confidence

• Improved export competitiveness

• Higher economic growth

• Increased unemployment