Economic Indicators and the Business Cycle
If a central bank successfully implements inflation targeting, what is the most likely short-term effect on price stability?
Increased predictability of inflation rates.
A rapid decrease in the general price level.
Immediate stabilization of all prices.
Elimination of cyclical unemployment.
What mechanism can governments utilize to address overconsumption and limit resource resulting in negative externalities?
Engaging in mass advertising campaigns to promote the product being overconsumed.
Regulating usage through legal limits or quotas per entity involved.
Removing tariffs on imported goods to compensate for domestic shortages.
Subsidizing production to encourage even greater consumption.
Which scenario can lead to hyperinflation?
Slight rise in interest rates
Excessive printing of money by a government
Moderate growth in consumer demand
Small increases in production costs
If the central bank aims to reduce inflation that is primarily caused by excess demand, which policy combination would be most effective in achieving this goal without severely impacting long-term economic growth?
Increase money supply and decrease taxes.
Decrease interest rates and increase taxes.
Implement expansionary fiscal policy while keeping monetary policy constant.
Increase interest rates and decrease government spending.
What term describes the reduction in purchasing power due to rising overall price levels?
Deflation
Inflation
Disinflation
Stagflation
What impact does inflation have on people with long-term fixed-rate loans?
Borrowers experience decreased buying power
They pay more due to higher interest rates
Lenders benefit from increased interest payments
Borrowers benefit at the expense of lenders
Given That Anticipated Inflation Can Lead Contract Indexation And Escalation Clauses, Which Scenario Would Likely Occur For Long Term Contracts?
No change in terms necessary as expected changes are already factored into initial agreement.
Shortened duration agreements becomes norm to avoid losses due to shifts in purchasing powers.
Wages and salaries automatically decrease to keep pace with rate fluctuations.
Predictable adjustments tied to cost of living increases protect parties' real value agreements.

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What is the term used to describe the decrease in the value of the individual dollar over time due to inflation?
Shoe leather costs
Loss of purchasing power
Menu costs
Wealth redistribution
Who may find it difficult to keep up with rising prices if their income does not increase at the same rate as inflation?
Workers on fixed incomes
Borrowers with variable rates
Owners of assets
Savers
What could be a potential short-term side effect for an economy immediately after adopting a strict inflation targeting policy?
Short-lived higher interest rates.
A permanent increase in national productivity.
Permanent zero interest rate policy adoption.
Long-lasting deflationary pressures on the economy.