Application 8B pg. 26

Question 1

Describe and define printing excess money

Answer 1

> causes inflation when too much money is injected into the economy
too much printed money in circulation results in price of goods and services increasing

Question 2

Define and describe scarcity in supply of goods and services

Answer 2

> can also cause inflation
during major wars, goods and services are diverted toward war effort, and prices tend to rise because of scarcity
during times of very low unemployment, wages rise as businesses compete for workers

Question 3

Describe and define increase in cost of goods and services

Answer 3

> third cause of inflation
if government increases minimum wage, cost of running business increases, forcing enterprise to raise its prices to maintain profitability

Question 4

Define nominal interest rate

Answer 4

nominal interest rate - interest charged

Question 5

Define real interest rate

Answer 5

real interest rate - the interest rate that the person paid on the loan