A period of inflation:
Answer(s): D
Choice "d" is correct. A period of inflation increases the price level, which is negatively related to the purchasing power of money (inflation erodes the value of money).Choice "a" is incorrect. When price levels increase, those with fixed amounts of money are hurt.Choice "b" is incorrect. The relationship between price levels and the purchasing power of money is negative, or inverse.Choice "c" is incorrect. Inflation helps anyone with a fixed obligation since the debt can be repaid in inflated dollars. Those receiving a specific fixed amount are harmed.
Which of the following would lead to the most inflation?
Answer(s): C
Choice "c" is correct. Choice "c" contains both demand-pull inflation (when the aggregate demand curve shifts right) and cost-push inflation (when the aggregate supply curve shifts left). An increase in aggregate demand causes output to rise and the price level to rise. A decrease in aggregate supply causes output to fall and the price level to rise. Thus, an increase in aggregate demand and a decrease in aggregate supply is the most inflationary.Choice "a" is incorrect. If aggregate supply increases, the price level will fall (reducing inflation). Choice "b" is incorrect. If aggregate demand decreases, the price level will fall (reducing inflation). Choice "d" is incorrect per above Explanation.
Which of the following is not consistent with full employment?
Choice "c" is correct. When the economy is operating at full employment, there is no cyclical unemployment. When the economy is operating at full employment, there is still some unemployment known as the natural rate of unemployment, which does not include cyclical unemployment.Choice "a" is incorrect. There is still some unemployment (frictional, structural, and seasonal) when the economy is operating at full employment.Choice "b" is incorrect, per the above Explanation. Choice "d" is incorrect, per the above Explanation.
Cyclical unemployment results from:
Choice "d" is correct. Cyclical Unemployment is caused by the business cycle. It tends to rise during a recession and fall during an expansion.Choice "a" is incorrect. This is an example of structural unemployment. Choice "b" is incorrect. This is an example of frictional unemployment. Choice "c" is incorrect. This is an example of seasonal unemployment.
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