AP Macro AP Macro Money and Inflation 2

Question 1

Demand-pull inflation is most likely to occur when:

Accepted Answer

Aggregate demand increases while the economy is near full employment

Answer

The money supply is decreased by the central bank

Answer

Production costs rise sharply

Answer

The government raises taxes

Question 2

Which measure of inflation tracks the prices paid by producers for inputs and is considered a leading indicator of consumer price changes?

Accepted Answer

PPI

Answer

CPI

Answer

GDP deflator

Answer

PCE index

Question 3

If actual inflation turns out to be lower than expected, who benefits?

Accepted Answer

Lenders who made fixed-rate loans

Answer

Borrowers who locked in fixed-rate loans

Answer

The government as a net debtor

Answer

Workers with cost-of-living adjustments

Question 4

Stagflation is best described as a period of:

Accepted Answer

High inflation combined with high unemployment and stagnant output

Answer

High growth and low unemployment

Answer

Low inflation and rapid GDP expansion

Answer

Deflation and falling unemployment

Question 5

Which of the following best explains why moderate inflation can be preferred over deflation by policymakers?

Accepted Answer

Deflation encourages consumers to delay spending, worsening recessions

Answer

Deflation reduces government tax revenues

Answer

Moderate inflation increases export competitiveness

Answer

Deflation raises the real wages of workers

Question 6

The 'menu cost' of inflation refers to:

Accepted Answer

The real resources used to change prices frequently during inflation

Answer

The cost restaurants pay for food supplies

Answer

Government printing costs for new currency

Answer

The tax burden on inflation-adjusted incomes