AS Economics: Inflation

The graph below shows the UK inflation rate from 1990 to 2001

From the graph it may be deduced that prices
1. Were lower in 2001 than they were in 1990
2. Fell sharply from 1990 to 1993
3. Rose in each year from 1990 to 2001
4. Were at their lowest in 1993
Which one of the following could lead to an increase in the underlying rate of inflation?
1. A fall in the exchange rate
2. A fall in the balance of payments surplus
3. A fall in consumer spending
4. A fall in the government budget deficit
The chart below shows the annual rate of inflation (measured by RPIX) and base interest rates since 1988

From the data in the chart we can deduce that
1. The real rate of interest has been negative throughout the period since 1988
2. Nominal interest rates have been more stable in the period since 1993
3. The general level of prices has been stable since 1993
4. Interest rates have been higher in the UK than for other European countries
Inflation could co-exist with all of the following except
1. A more unequal distribution of income
2. Falling unemployment
3. Rising real wages
4. An increase in the value of money
During a year, there has been a rise in national income of 7% and a rise in the retail price index of 4%. The population remained stable. The approximate change in real income per head is?
1. -3%
2. +4%
3. +3%
4. +11%
Price stability occurs when
1. All prices in the economy are constant
2. The rate of inflation is zero
3. The general price level in the economy increases at a steady and low rate
4. There is no change in the exchange rate against other currencies
Inflation is defined as
1. The % change in the price level over the preceding twelve months
2. The rise in labour costs over the last year
3. The increase in average prices in the retail sector
4. The percentage expansion of the economy over the last year
A country experiences a rate of inflation twice that of its main international competitors. At the same time its currency appreciates in value. Which of the following is most likely to occur?
1. A rise in exports
2. A rise in business confidence
3. A rise in investment
4. A rise in business failures
The table below shows the rate of inflation for a country over a four year period

Which of the following statements is correct?
1. The price level was at its lowest at the start of the period
2. The price level was at its lowest at the end of the period
3. The rate of inflation was at its highest in the year 2000
4. The price level fluctuated over the period
Which of the following would be an attempt by the government to introduce direct controls to reduce inflation?
1. Setting pay limits for workers in the national health service and education
2. Raising interest rates
3. Allowing the exchange rate to appreciate
4. Cutting government subsidies to farmers
Weights are used in calculating the index of retail prices to reflect the different
1. Amounts of money relative to their budget spent by consumers on each good and service
2. Levels of prices for each good
3. Numbers of people buying each good
4. Rate of change in price of each good over time
If the government wishes to reduce the rate of inflation, it is most likely to increase
1. Income tax allowances
2. The burden of direct taxation
3. Social security benefits paid to pensioners and households on low incomes
4. The wages of people working in the National Health Service
Suppose that currently the average inflation rate is 5% per year; however, business firms and labour anticipate that the general price level will increase by substantially more than the 5% over the next two years. Other things constant, these expectations can cause
1. An acceleration in the rate of increase in the price level in the economy
2. An increase in the productivity of businesses throughout the economy
3. A decrease in the rate of inflation
4. No change in inflation but a rise in unemployment
The following figures are taken from the index of retail prices for three countries (Year 1 = 100)

The table shows that between Year 2 and Year 3
1. Country A had the highest rate of economic growth
2. Country B had the lowest rate of inflation
3. Country C had the highest national income per head of population
4. Country C had the lowest rate of inflation
In an economy already at full-employment, which one of the following policies will be least suitable for the control of inflationary pressure in the economy?
1. Higher interest rates to encourage saving
2. Higher direct taxes
3. A lower exchange rate
4. Higher government spending
A group of workers receives a pay increase of 10%. Also over this same time period the Retail Price Index rises 10 points to 510. It can be concluded that real wages have
1. Remained unchanged
2. Risen by approximately 8%
3. Risen by approximately 10%
4. Fallen
Between June 1997 and September 1998 the Bank of England's Monetary Policy Committee increased interest rates by 1.5% to try to curb inflationary pressures. An increase in interest rates might be expected to help reduce inflation because a rise in interest rates is likely to
1. Reduce consumer spending
2. Increase investment spending
3. Lead to an increase in the money supply
4. Reduce the value of the £
A rise in the exchange rate of sterling is likely to assist UK government policies aimed at reducing the
1. Level of imports
2. Level of unemployment
3. Rate of inflation
4. Balance of Payments deficit
The diagram below shows a relationship between unemployment and wage inflation

We can deduce from the chart that
1. A rise in unemployment will cause a fall in the price level
2. A rise in unemployment will cause a rise in wage inflation
3. A fall in unemployment will cause an acceleration in wage inflation at some stage
4. A fall in unemployment will cause the exchange rate to rise at some stage
Which one of the following can lead to a rise in inflation? An increase in
1. The exchange rate
2. Costs of production
3. Productive capacity
4. The level of direct taxation
One of the consequences of inflation is that it
1. causes creditors to benefit at the expense of debtors
2. can encourage people to increase saving
3. causes debtors to benefit at the expense of creditors.
4. causes people to postpone consumption
As the price level increases
1. the quantity of money demanded falls
2. the value of money falls
3. the demand for credit will increase
4. real GDP will increase
Suppose the nominal interest rate is 9%. The rate of inflation is 6%. The real interest rate is
1. + 3%
2. - 3%
3. + 15%
4. + 1.5%
The primary result of inflation is
1. a decline in prices
2. a rise in wages
3. a decline in the value of money
4. a rise in personal wealth
The chart below shows the annual rate of retail price inflation for the UK

From the information in the chart we can deduce that
1. There was deflation in the economy during the 1990s
2. Prices fell from 2000 onwards
3. All prices of goods and services were rising throughout the 1990s
4. The average rate of inflation for the UK during the last ten years has been close to 3% per year
If an economy is operating at full capacity, an increase in aggregate demand usually leads to an increase in inflation because it is likely that
1. the exchange rate will appreciate
2. government tax revenues will increase
3. the rate of increase in money wages will rise
4. interest rates will fall

AS Economics: Inflation

Economics Multiple-choice Quiz