4.3.3 Inflation and deflation

• What is inflation defined as?

  Sustained increase in prices
• Inflation increases the purchasing power of currency.

  False
• Deflation is a sustained decrease in the general price level
• Order the characteristics of inflation and deflation based on their trend in price levels:

  1️⃣ Inflation: Increasing price level

  2️⃣ Deflation: Decreasing price level
• Match the type of inflation with its cause:

  Demand-pull inflation ↔️ Increase in aggregate demand

  Cost-push inflation ↔️ Increase in production costs
• Cost-push inflation is caused by an increase in production costs
• What is an example of a factor that can cause demand-pull inflation?

  Strong economic growth
• Order the characteristics of deflation and inflation based on their causes:

  1️⃣ Deflation: Decrease in aggregate demand, Increase in productivity/supply

  2️⃣ Inflation: Increase in aggregate demand, Increase in production costs
• A decrease in government spending can lead to deflation.


  True
• Improvements in technology can increase supply and lead to deflation.

  True
• Inflation refers to a sustained increase in the general price level
• What is deflation defined as?

  Sustained decrease in prices
• Deflation increases the purchasing power of currency.


  True
• The price level trend in inflation is increasing
• Demand-pull inflation is caused by an increase in aggregate demand
• Cost-push inflation occurs when businesses pass on higher production costs to consumers.


  True
• What is an example of a factor that can cause cost-push inflation?

  Increase in energy prices
• Deflation can be caused by a decrease in aggregate demand
• Deflation can also be caused by an increase in productivity
• What are the primary causes of deflation?

  Decrease in demand, Increase in supply
• What happens to the supply of goods and services when there is an increase in efficiency or resource availability?

  Supply increases
• Increased supply of goods and services can lead to deflation.

  True
• A surplus of goods and services can lead to lower prices in deflation.


  True
• What is the primary cause of deflation according to the study material?

  Decrease in aggregate demand
• An increase in productivity or supply can lead to deflation
• Businesses may face reduced profit margins during inflation.


  True
• What is the definition of inflation?

  Sustained increase in prices
• What is the primary cause of demand-pull inflation?

  Increase in aggregate demand
• What are examples of factors that can cause cost-push inflation?

  Higher wages, increased oil prices
• What is the impact of inflation on consumers' standard of living?

  It decreases their standard of living
• Deflation can lead businesses to reduce production and employment.


  True
• Deflation is characterized by a sustained decrease in the general price level.
• Match the policy type with its mechanism to manage inflation:

  Monetary Policy ↔️ Reduce money supply

  Fiscal Policy ↔️ Increase taxes
• Raising interest rates is a tool used in monetary policy to combat inflation.
• What are the two main types of policies used to manage inflation?

  Monetary and fiscal policies
• Fiscal policies involve increasing taxes and reducing government spending.

  True
• How does raising interest rates reduce inflation?

  Increases borrowing costs
• Quantitative easing increases the money supply and boosts liquidity
• Define inflation in economic terms.

  Sustained increase in prices
• Deflation can discourage spending due to expectations of lower prices in the future.


  True