2. Most people in the United States have grown accustomed to a modest inflation rate of around 2-3%. Who would gain and who would lose if inflation came to a complete stop for several years? Explain.

Solutions appear at the back of the book.

Tackle the Test: Multiple-Choice Questions 1. Which of the following is true regarding prices in an economy?

I. An increase in the price level is called inflation.

II. The level of prices doesn’t matter.

III. The rate of change in prices matters.

a. I only

b. II only

c. III only

d. II and III only

e. I, II, and III