Inflation Quiz

Inflation occurs whenever:

• aggregate demand rises.
• the price of any given commodity rises.
• the average price of most goods and services rises.
• the tax rate is lower than the government spending rate.

When prices creep up slowly over a period of several years at a rate of two or three percent per year, what is the LIKELY impact on production? Such inflation will probably:

• increase output in the short run.
• reduce output moderately.
• increase output dramatically.
• reduce output dramatically.

Which of the following MUST decline in order to slow demand-pull inflation?

• Production capacity
• Spending
• Taxes
• NNP

George B. is disgusted with the way things have been going in the economy. Like many of his friends, he has been out of work for some months and has all but given up looking for work as a machinist. With his savings virtually depleted and unemployment benefits about to run out, he feels he’ll have little choice but to take whatever job he can get, whether he is able to use his skills or not. “Prices keep going up, up, up,” he sighs. “Everything costs more every time you go to the store—and still you can’t get work. Where are we supposed to get the money to pay for it all?” The situation George is describing in this scenario can BEST be termed:

• stagflation.
• inflationary gap.
• recession.
• demand-pull inflation.

Which of the following is the BEST appraisal of inflation and unemployment during the late 1970s and early 1980s?

• Both the unemployment and inflation rates have been consistently higher in the U.S. than in Europe.
• The U.S. has experienced less inflation than many European nations, but our unemployment rate has been consistently higher.
• The worldwide recession has taken a higher toll in Europe, where both unemployment and inflation rates have run far ahead of those here.
• Japan has had consistently higher rates of unemployment and inflation than either Europe or the U.S.