Inflation Jeopardy
Inflation 1
Inflation 2
CPI
(Un)anticipated
Inflation
Policies
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10
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30
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What is inflation?
A sustained rise in the average level of prices
Creeping inflation creeps at what
rate?
Lower than 10%
Galloping inflation gallops at what
rate?
Between 10% and 100%
What is the rate of hyperinflation?
More than 100%
What is the stagflation?
When the economy has a rising unemployment rate and high
inflation at the same time
Inflation caused by increases in the
costs of production due to increases
in the costs of raw materials is
______ inflation.
Cost-push
Inflation caused by the fact that the
demand for goods and services
exceeds production capacity is
______ inflation.
Demand-pull
What are the effects of deflation?
Unemployment and lower prices
The Bank of Canada aims to keep
inflation at what rate?
2%
What is one effect of inflation?
Rising interest rates, decrease in trading, and people on fixed
incomes are greatly affected
What does the CPI measure?
The price changes in consumer goods
What is the Rule of 70?
The number of years required for the price level to double
N = 70/Rate of Inflation *N is # of years for
inflation to double
How many goods and services are
included in the CPI?
400 different items
The highest category of weight in
the CPI is..?
Housing
The lowest category of weight in
the CPI is..?
Health & Personal care
Define unanticipated inflation.
The level of inflation that is unforseen
Who are the winners of
unanticipated inflation?
Debtors, producers & real estate owners
Who are the losers of unanticipated
inflation?
Creditors, people on fixed income & owners of financial assets
Define anticipated inflation.
The level of inflation people expect to occur
What is one of the economic costs of
anticipated inflation?
- Transaction costs
- Distortion of incentives from the tax system
- The uncertainty of how and when policy makers will respond
What actions would the Finance
Department take if inflation is high?
Reduce government spending and/or increase taxes
What actions would the Bank of
Canada take if inflation is high?
Reduce interest rates
What type of fiscal policy would the
Finance Department implement if
there is high inflation?
A contractionary fiscal policy
How can inflation be decreased?
Cutting government expenditures, Increasing taxes, or both
In what range(s) does inflation occur?
Classical and intermediate ranges