Economic Indicators and the Business Cycle
How might an economy transition from low levels of inflation to hyperinflation?
An accelerating monetary supply growth leads to a rapid devaluation of the currency and runaway price levels.
Controlled fiscal policy and moderate interest rates stimulate sustained decreases in consumer prices.
Slow capital flows and restricted access to global financial markets lead to gradual decline in prices.
Extensive regulatory reforms in sectors promoting increased market competition reduce overall price pressures.
Which scenario demonstrates stagflation?
Sustained deflation accompanied by robust economic growth and job creation.
Rapid economic expansion preceded by a period of below-average price increases.
High unemployment coincides with marked increases in prices across economic sectors.
Balanced budget surplus achieved alongside controlled moderate inflation.
What does it indicate about an economy if its core inflation rate rises steadily but its headline inflation remains constant?
The cost of living is decreasing due to lower food and energy prices.
The prices of food and energy are stable while other goods and services are getting more expensive.
General price levels are falling while food and energy costs rise.
There is deflation in non-food and non-energy sectors of the economy.
What long-term impact might consistent inflation targeting by a country's central bank have on its currency value?
It may strengthen the currency due to increased investor confidence.
It could permanently peg the currency’s value to that of another major currency like the US dollar or euro.
Targeting may inadvertently lead to hyperinflation, drastically reducing currency value.
The value of the currency could become excessively volatile as markets react to targets.
When economists want to measure inflation that includes imports but excludes volatile food and energy prices, which version of CPI do they typically use?
Headline CPI
General CPI
Expanded CPI
Core CPI
What happens when central banks respond too aggressively new signs slowing economic activity?
Central bank actions no significant bearing pace adjust interest rates unless already near zero bound.
Response usually triggers immediate robust recovery, nullifying any slowdown concerns.
They risk sparking high levels excessive liquidity resulting too much money chasing few available assets.
Bank interventions always create perfect equilibrium between unemployment output gaps.
If a country's inflation rate is higher than that of its trading partners, how would this most likely affect the country's exchange rate in the short term?
High inflation rates will have no impact on exchange rates due to market efficiency.
The country's currency will appreciate against its trading partners' currencies.
The inflation rate will cause hyperinflation in both domestic and foreign markets.
The country's currency will depreciate against its trading partners' currencies.

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Which factor typically influences whether a government pursues expansionary or contractionary fiscal policies?
The current phase of the business cycle.
The fashion industry trends during that year.
Popularity polls for current political figures.
The success rates of local sports teams.
What is the relationship between the inflation rate and the purchasing power of money?
The relationship between the inflation rate and the purchasing power of money is unpredictable.
As the inflation rate increases, the purchasing power of money increases.
As the inflation rate increases, the purchasing power of money decreases.
The inflation rate has no impact on the purchasing power of money.
How does establishing an explicit inflation target potentially impact interest rates set by a nation's central bank?
Central banks would cease managing interest rates, focusing solely on controlling money supply instead.
Interest rates could fluctuate unpredictably as they are no longer influenced by market forces.
They might be perpetually lowered regardless of economic circumstances to spur growth at all times.
Interest rates may become more stable as they adjust predictably toward achieving the target rate.