2.1.1 Macroeconomics Part B

Question 1

What is the relationship between inflation and interest rates?

Answer 1

Inflation typically leads to higher interest rates.

Question 2

How does inflation impact prices?

Answer 2

Inflation causes prices to increase.

Question 3

How does inflation affect wages?

Answer 3

Inflation can lead to higher wages as workers demand more to keep up with rising prices.

Question 4

What is the effect of inflation on exports?

Answer 4

Inflation can make exports more expensive, potentially reducing demand from foreign buyers.

Question 5

How does inflation influence unemployment?

Answer 5

Inflation can lead to varying impacts on unemployment; in some cases, it may decrease unemployment in the short term.

Question 6

What are menu costs in relation to inflation?

Answer 6

Menu costs refer to the costs businesses incur from changing prices due to inflation.

Question 7

Define shoe leather costs.

Answer 7

Shoe leather costs are the costs associated with reducing cash holdings during inflation.

Question 8

What is the impact of inflation on uncertainty?

Answer 8

Inflation increases uncertainty in the economy, making planning and budgeting more difficult.

Question 9

How does inflation affect business and consumer confidence?

Answer 9

High inflation can erode confidence among businesses and consumers.

Question 10

What is the relationship between inflation and investment?

Answer 10

High inflation can deter investment due to increased uncertainty and higher costs.