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 provided, what happens when aggregate demand shifts from $$AD1 to$$ $$AD2$$ while aggregate supply remains unchanged?

Accepted Answer

The price level rises and real GDP increases.

Question 3

Which type of inflation is most closely associated with the phrase 'too much money chasing too few goods'?

Accepted Answer

Demand-pull inflation

Question 4

In the context of cost-push inflation, as illustrated in the second diagram, what is the immediate effect of a leftward shift in the aggregate supply curve ($$AS$$)?

Accepted Answer

An increase in the price level and a decrease in output

Question 5

Which of the following is NOT a feature of inflation?

Accepted Answer

It affects all people equally.

Question 6

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

Accepted Answer

It excludes volatile items like food and fuel to show underlying inflation trends.

Question 7

A government increases its expenditure on infrastructure projects, but the supply of goods and services does not increase immediately. According to the study materials, what type of inflation is most likely to result?

Accepted Answer

Demand-pull inflation

Question 8

Which of the following is a likely effect of inflation on creditors and debtors?

Accepted Answer

Debtors benefit and creditors lose.

Question 9

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

Accepted Answer

Inflation is increasing and unemployment is decreasing.

Question 10

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

Accepted Answer

Selling government securities through open market operations

Question 11

Which of the following is a characteristic of the depression phase in a trade cycle, as shown in the last diagram?

Accepted Answer

Continuous fall in output, income, and employment

Question 12

Which of the following is a requirement for successful inflation targeting by a central bank?

Accepted Answer

Sufficient autonomy of the central bank

Question 13

Which of the following is NOT a cause of stagflation?

Accepted Answer

Rapid technological innovation

Question 14

Which of the following best describes the long-run Phillips Curve, as shown in the fourth diagram?

Accepted Answer

It is vertical, indicating no long-run trade-off between inflation and unemployment.

Question 15

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

Accepted Answer

Increasing direct taxes

Question 16

Which of the following is a likely consequence of stagflation?

Accepted Answer

Increase in unemployment and a rise in the general price level

Question 17

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

Accepted Answer

They have a fixed and predictable rhythm.

Question 18

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

Accepted Answer

Inelastic supply due to infrastructure bottlenecks

Question 19

Which of the following best describes the effect of inflation on fixed-income groups?

Accepted Answer

They suffer because their purchasing power declines.

Question 20

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

Accepted Answer

Fixing maximum prices for essential commodities

Step-by-Step Guidance for Inflation and Trade Cycle Concepts (Macroeconomics)

Study Guide - Practice Questions

Study Guide - Flashcards