Question 1

Which of the following best describes the relationship between the general price level and the value of money during inflation?

Accepted Answer

As the general price level rises, the value of money falls.

Question 2

According to the first diagram, what happens when aggregate demand shifts from $$AD1 to$$ $$AD2$$ while aggregate supply remains unchanged?

Accepted Answer

The price level increases from $$P1 to$$ $$P2$$ and real GDP increases from $$Y1 to$$ $$Y2.$$

Question 3

Which type of inflation is illustrated by a rightward shift in the aggregate demand curve, as shown in the first diagram?

Accepted Answer

Demand-pull inflation

Question 4

In the second diagram, what is the primary effect of a leftward shift in the aggregate supply curve (from $$AS_1 to$$ $$AS_2$$)?

Accepted Answer

The price level rises and output falls, indicating cost-push inflation.

Question 5

Which of the following is NOT a feature of inflation?

Accepted Answer

It always benefits creditors more than debtors.

Question 6

Which of the following best explains the concept of core inflation?

Accepted Answer

It measures inflation after excluding volatile items like food and fuel.

Question 7

Refer to the third diagram (Phillips Curve). If the economy moves from point A to point B, what happens to inflation and unemployment?

Accepted Answer

Inflation increases and unemployment decreases.

Question 8

Which of the following is a likely consequence of cost-push inflation?

Accepted Answer

Stagflation, where prices rise and output falls.

Question 9

Which of the following is a direct measure to control inflation?

Accepted Answer

Price controls on essential commodities.

Question 10

In the context of inflation targeting, what is the main requirement for its success?

Accepted Answer

Sufficient autonomy of the central bank.

Question 11

Which phase of the business cycle is characterized by high income, high employment, rising prices, and maximum production, as shown in the fifth diagram?

Accepted Answer

Prosperity (Expansion) phase

Question 12

Which of the following is NOT a cause of trade cycles?

Accepted Answer

Constant government expenditure with no change in investment or consumption.

Question 13

Which of the following best describes stagflation?

Accepted Answer

A situation with rising prices, high unemployment, and low or negative economic growth.

Question 14

Which of the following is a likely effect of failing to achieve the inflation target?

Accepted Answer

Reduced purchasing power for fixed-income groups.

Question 15

Which of the following is a characteristic of trade cycles?

Accepted Answer

They are periodic but do not have a fixed rhythm.

Question 16

Which of the following is an example of a fiscal measure to control inflation?

Accepted Answer

Increasing direct taxes to reduce disposable income.

Question 17

Which of the following best explains the vertical long-run Phillips Curve shown in the fourth diagram?

Accepted Answer

There is no permanent trade-off between inflation and unemployment in the long run.

Question 18

Which of the following is a supply-side cause of inflation in a developing economy?

Accepted Answer

Inelastic supply due to weak infrastructure.

Question 19

Which of the following is a consequence of stagflation?

Accepted Answer

Simultaneous increase in unemployment and prices.

Question 20

Which of the following is a distinguishing feature of headline inflation compared to core inflation?

Accepted Answer

Headline inflation includes all goods and services, including food and fuel.

Inflation and Business Cycles: Step-by-Step Study Guidance

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