Inflation and Interest Rate

Question 1

Is defined as the continuous rise in the general price level of goods and services

Answer 1

Inflation

Question 2

How to measure Inflation

Answer 2

Consumer price index (CPI)
Producer price index (PPI)
GDP deflator

Question 3

which is the equivalent of the CPI on the supplier side

Answer 3

Producer price index (PPI)

Question 4

It is derived by getting the weighted average of the price indexes used to “deflate” the GDP.

Answer 4

GDP deflator

Question 5

Causes of Inflation

Answer 5

Demand-pull inflation
Cost-push inflation

Question 6

example of Demand-pull inflation

Answer 6

pandemic (face mask)

Question 7

example of Cost-push inflation

Answer 7

oil

Question 8

Factors that cause higher production cost

Answer 8

Higher prices of raw materials and commodities
Higher food prices
Higher taxes

Question 9

Effects of Inflation

Answer 9

Purchasing power
Cost of borrowing
Consumer spending
Unemployment
Economic growth

Question 10

is a situation of very high and ever-increasing inflation rates.
If left unchecked, inflation can have damaging effects as witnessed time and again throughout history

Answer 10

Hyperinflation

Question 11

Responsibility to keep inflation in check.

Answer 11

Central bank

Question 12

Level of money supply

Answer 12

Interest rate

Question 13

is the rate of return and the cost of borrowing

Answer 13

Interest Rate

Question 14

Nominal Rate vs Real Interest Rate

Answer 14

Nominal interest rate is the rate typically quoted on investments or the rate stated on loan contracts. Real Interest Pertains to the rate adjusted for inflation

Question 15

Types of Interest Rate

Answer 15

Institutions
Term of a loan
Flexibility of the rate

Question 16

Determinants of Interest Rate

Answer 16

Credit risk of the borrower

Question 17

the higher the credit risk of an individual or company, the higher the interest rate on loans.

Answer 17

Credit risk of the borrower

Question 18

Investment grade

Answer 18

BBB - by S&P
BBB - by Fitch and Baa3 by Moody’s or higher
Credit ratings: positive or negative based on a tier-type system

Question 19

More liquid assets often get lower interest rate.
Refers to the probability that a debtor or borrower cannot meet short term obligations.

Answer 19

Liquidity risk

Question 20

Refers to the availability of cash and other short- term assets that are easily convertible to cash.

Answer 20

Liquidity

Question 21

is a financial security that represents debt.

Answer 21

Bonds

Question 22

Bonds issued by public or private firms

Answer 22

Corporate bonds

Question 23

bonds Issued by the government

Answer 23

Treasury bonds or T-bonds

Question 24

Measures the aggregate interest a bondholder will receive if the bondholder hold on to the bond until maturity.

Answer 24

Yield