Inflation

Question 1

Price index definition

Answer 1

Weighted average price of the basket of goods consumed by the average household

Question 2

Inflation definition

Answer 2

Rate of change of a price index.

Question 3

Inflation formula

Answer 3

π = (PI(current) - PI(previous)) / PI(previous) x 100

Question 4

CPI definition

Answer 4

measures price level based on consumption pattern of typical consumer

Question 5

Price index/ CPI formula

Answer 5

price index = [basket price(current)/ basket price(base)] x 100

Question 6

When unexpected INFLATION, who is better off - borrower or lender?

Answer 6

Borrower

Question 7

When unexpected DEFLATION, who is better off - borrower or lender?

Answer 7

Lender

Question 8

What is money illusion and what is it a result of?

Answer 8

When people interpret nominal changes as real changes. It is a result of inflation.

Question 9

What is the cause of inflation?

Answer 9

When the supply of money grows faster than the quantity of goods and services.

Question 10

True or false - during inflation, wages rise.

Answer 10

True - wages are also prices.

Question 11

Is inflation the cause of one good becoming more expensive than another?

Answer 11

Usually not