How is inflation typically measured? What are the different types of inflation? Why is it important to know which type of inflation we may be experiencing?
What will be an ideal response?
Inflation is typically measured by the CPI. The two types of inflation are demand-pull and cost-push. Demand-pull inflation is characterized by "too many dollars chasing too few goods and service." Demand-pull inflation is caused by total spending increasing faster than real GDP. Cost-push inflation is caused by anything that increases costs of production. Knowing which type of inflation we may be suffering from is important because each type of inflation requires a different policy prescription to combat.
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Points to the right of the IS schedule indicate that
a. investment plus government spending will exceed saving plus taxes. b. the amount of money supplied exceeds the amount of money demanded. c. saving plus taxes will exceed investment plus government spending. d. the amount of money demanded exceeds the amount of money supplied.
Assuming perfect capital mobility and flexible exchange rates, then
a. monetary policy is ineffective while fiscal policy is highly effective. b. fiscal policy is completely ineffective while monetary policy is highly effective. c. both monetary policy and fiscal policy are effective. d. monetary policy is less effective than fiscal policy.
Which of the following is the best definition of money?
A) Currency plus outstanding credit card balances. B) The outstanding credit debt of households and businesses. C) Anything that widely serves as a medium of exchange, unit of account, and store of value. D) Various types of paper notes and coinage backed by precious metals.
The aggregate demand curve shifts to the left when the Fed:
A. decreases its target inflation rate, reflected by an upward shift in the Fed's policy reaction function. B. decreases real interest rates in response to inflation, but does not change its target inflation rate or the Fed's policy reaction function. C. increases its target inflation rate, reflected by a downward shift in the Fed's policy reaction function. D. increases real interest rates in response to inflation, but does not change its target inflation rate or the Fed's policy reaction function.