Costs of Inflation

Question 1

Which of the following is a consequence of unexpected inflation that negatively impacts everyone in the economy?

AEmployers are able to compensate workers with wages that have lower purchasing power.

BBorrowers must pay back money that obtains fewer goods and services than when it was originally lent.

CThe average price level remains perfectly stable.

DThe resulting uncertainty makes it difficult to assess costs, benefits, and risk.

EAdjustable-rate loans are modified to take into account the change in purchasing power.

Question 2

Which of the following would benefit borrowers of fixed interest rate loans at the expense of their creditors?

AThe actual inflation rate is less than the expected inflation rate.

BThe actual inflation rate is more than the expected inflation rate.

CHyperinflation begins to occur in the economy.

DThe average price level remains perfectly stable.

EThe average price level fluctuates wildly for a sustained period.

Question 3

Which of the following groups would benefit from an increase in the average price level in an economy?

AIndividuals and institutions who have loaned money

BBorrowers of loans with rates that automatically adjust with inflation

CThose controlling resources whose prices increased by more than the average

DThose controlling factors of production whose prices decreased during the same period

EThe creditors for capital investment loans

Question 4

An increase in ______ represents _____. The speed of the increase is ______.

Aaverage price level; inflation; the inflation rate

Baverage price level; the inflation rate; inflation

Cborrowing; the inflation rate; the circular flow

Dlending; the inflation rate; the circular flow

Euncertainty; inflation; the inflation rate

Question 5

Use the table below to answer the question that follows.