Inflation is harmful to society because it often
a. causes consumers' purchasing power to decline
b. causes sellers' costs to increase
c. causes nominal wages to fall
d. causes purchasing power to be redistributed in haphazard ways
e. has no effect at all on anyone's purchasing power
D
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The terms of trade are acceptable if the price is ________ the seller's opportunity cost and ________ the buyer's opportunity cost.
A. above, below B. below, below C. below, above D. above, above
Which of the following is not an example of inflation causing a redistribution of income because the inflation was unexpected?
A) Firms have to hire extra workers to change prices because of inflation. B) A firm signs a 4-year contract with a union based on a 3% expected rate of inflation per year, and the actual inflation rate ends up being 5% per year. C) An employee receives an increase in salary that is less than the rate of inflation because management under-predicted inflation. D) A bank collects a lower amount of interest from a loan because inflation was predicted to be 2% but was actually 4%.
The average work week in the United States has declined to fewer than 40 hours even though wage rates have been increasing. The best explanation of this phenomenon is that
a. the labor supply curve shifted to the right b. the labor demand curve shifted to the right c. the income effect of rising wages outweighed the substitution effect d. the income effect of rising wages could not outweigh the substitution effect e. none of the above
The federal government's budget includes spending on goods and services, transfer payments, and taxes. (This is also true of state and local government budgets, but our focus for purposes of fiscal policy analysis is mainly the federal budget.)
What will be an ideal response?