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AP Macroeconomics
Unit 2: Economic Indicators and the Business Cycle
2.3 Inflation
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Inflation is typically measured using
Price Indices
How does inflation reflect changes in the price level?
Percentage change
Demand-pull inflation occurs when aggregate demand exceeds
aggregate supply
.
True
Match the type of inflation with its definition:
Demand-Pull Inflation ↔️ Aggregate demand exceeds aggregate supply
Cost-Push Inflation ↔️ Production costs increase
What is one factor that can cause cost-push inflation?
Higher raw material costs
Steps to measure inflation using price indices:
1️⃣ Track changes in prices of goods and services
2️⃣ Use the CPI to measure consumer price changes
3️⃣ Use the PPI to measure producer price changes
4️⃣ Calculate the percentage change in prices
Inflation is measured using
Price Indices
What is inflation expressed as?
Percentage change
The CPI reflects consumer price changes, while the PPI tracks
producer
price changes.
True
The CPI and PPI provide insights into the overall rate of
inflation
Inflation is expressed as a percentage change in the
price level
What does inflation measure in an economy?
Increase in prices
What does the CPI measure?
Consumer price changes
Both the CPI and PPI provide insights into the overall rate of
inflation
in the economy.
True
Demand-pull inflation occurs when aggregate demand exceeds aggregate
supply
Expansionary monetary policy can contribute to
demand-pull
inflation.
True
Inflation reduces the purchasing power of money.
True
How does inflation affect debtors?
Eases debt burden
Inflation can discourage
investment
Monetary policy is effective at curbing high inflation but can slow economic growth.
True
What is a potential drawback of fiscal policy in managing inflation?
Slow implementation
The CPI tracks price changes from the perspective of
consumers
What are the two main types of inflation?
Demand-pull and cost-push
What is a common cause of cost-push inflation?
Higher raw material costs
Inflation is primarily caused by demand-pull and cost-push
factors
Rising energy prices are a factor that can cause cost-push
inflation
What is the role of monetary policy in managing inflation?
Raises interest rates
Direct controls such as price ceilings may distort market
prices
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