Multiple Choice
In macroeconomics, the annual inflation rate measures the percentage growth rate of which of the following?
11. Unemployment and Inflation
Inflation and Consumer Price Index (CPI)
Struggling with Macroeconomics?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
Typically, low inflation is a sign of which of the following macroeconomic conditions?
A
Stable prices and a relatively predictable purchasing power of money
B
Sustained hyperinflation caused by excessive money creation
C
A persistent increase in the CPI driven mainly by supply shocks
D
Rapidly rising nominal wages that outpace productivity growth
Verified step by step guidance1
Understand the concept of inflation: Inflation refers to the general increase in prices of goods and services over time, which reduces the purchasing power of money.
Recognize that low inflation means prices are rising slowly or are stable, which implies that the purchasing power of money does not change drastically over time.
Analyze each option in relation to low inflation: Hyperinflation involves extremely high inflation, so it contradicts low inflation; supply shocks often cause sudden price increases, leading to higher inflation; rapidly rising nominal wages outpacing productivity typically cause inflationary pressure.
Conclude that low inflation is most consistent with stable prices and a relatively predictable purchasing power of money, as this reflects a healthy and stable macroeconomic environment.
Summarize that low inflation indicates price stability and predictable purchasing power, which is beneficial for economic planning and long-term contracts.
Related Videos
Related Practice
Inflation and Consumer Price Index (CPI) practice set
Problem sets built by lead tutorsExpert video explanations