Question : Inflation is defined as:
Option 1: A sustained increase in the general price level
Option 2: A sustained decrease in the general price level
Option 3: A temporary increase in the general price level
Option 4: A temporary decrease in the general price level
Correct Answer: A sustained increase in the general price level
Solution : The correct answer is (a) A sustained increase in the general price level
Inflation refers to a persistent and sustained increase in the average price level of goods and services in an economy over time. It means that, on average, prices are rising, and the purchasing power of money decreases. Inflation is commonly measured using various price indices, such as the Consumer Price Index (CPI) or the Producer Price Index (PPI).
Inflation can be caused by factors such as increased demand for goods and services, supply shocks, changes in production costs, or changes in the money supply. It is typically expressed as an annual percentage rate, indicating the rate at which prices are rising over a specific period.
Question : The wealth effect suggests that an increase in the price level leads to:
Option 1: A decrease in consumption expenditure
Option 2: An increase in consumption expenditure
Option 3: A decrease in investment expenditure
Option 4: An increase in investment expenditure
Question : According to the Phillips curve, a decrease in unemployment is likely to result in:
Option 1: Higher inflation
Option 2: Lower inflation
Option 3: No change in inflation
Option 4: Deflation
Question : Cost-push inflation occurs when:
Option 1: There is an increase in aggregate demand
Option 2: There is a decrease in aggregate demand
Option 3: There is an increase in aggregate supply
Option 4: There is a decrease in the aggregate supply
Question : The interest rate effect states that an increase in the price level leads to:
Option 1: An increase in the interest rate
Option 2: A decrease in the interest rate
Option 3: No change in the interest rate
Option 4: An increase in savings
Question : The aggregate supply curve shows the relationship between:
Option 1: Price level and aggregate demand
Option 2: Price level and real GDP
Option 3: Interest rate and investment expenditure
Option 4: Inflation and unemployment
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