Some goods take a greater percentage of a typical household’s total spending than others.
How is this accounted for in the construction of a consumer prices index?
by deducting the goods
by giving a weight to the goods
by taking an average of price fluctuations during a year
by using the price elasticity of demand for the goods
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A person receives annual interest of 4% on their savings. Inflation is 5% per annum.
What is the approximate change in the real value of their savings?
-5%
-1%
+4%
+9%
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An increase in which of the following is least likely to cause inflation?
consumer spending
government spending
income tax
wages
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Rates of inflation and deflation are measured using a consumer prices index (CPI) over a period of time.
The table shows average rates of CPI for Japan from 2010–2014.
year | change in CPI |
2010 2011 2012 2013 2014 | –0.72 –0.28 –0.03 0.36 2.75 |
In which period did Japan experience deflation followed by inflation?
2010–2011
2011–2012
2012–2013
2013–2014
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What is used to measure inflation?
the consumer prices index (CPI)
the exchange rate
the gross domestic product (GDP)
the index of workers’ wages
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In the construction of a consumer prices index (CPI), a total weight of 1000 is used.
If a weight of 300 is given to food and a weight of 150 is given to transport, then
consumers are spending half as much on transport as they do on food.
consumers must be spending more on necessities than on luxury goods.
food prices must be rising twice as fast as transport prices.
the weights cannot be changed until the index reaches 1000.
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An economy is experiencing rising prices. Which government policy will help reduce consumer expenditure?
introducing compulsory saving for income earners
investing more in building infrastructure
issuing more banknotes and coins
reducing indirect taxes
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Venezuela, a leading world oil producer, has experienced hyperinflation of over 400% per annum in recent years. How does hyperinflation affect an economy?
| prices | effect |
A B C D | fluctuate up and down fluctuate up and down rise very rapidly rise very rapidly | consumers are uncertain about future price levels consumers can anticipate future price levels value of fixed assets remains stable money has limited worth as a medium of exchange |
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An economy experienced deflation.
Which combination shows the likely outcome of this?
| consumer confidence | price level | investor confidence |
A B C D | decrease decrease increase increase | decrease increase decrease increase | decrease decrease increase increase |
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What is most likely to cause a rise in the rate of inflation in an economy?
a fall in import prices
a fall in wage rates
a rise in the level of government spending
a rise in the level of unemployment
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The diagram shows percentage (%) changes in prices and wages over time.
What does the diagram indicate?
Inflation is proportionately related to wage levels.
The gap between wages and prices is constant.
Wages are highest in 2010.
Wage earners have increasingly less purchasing power.
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A country is experiencing a period of full employment.
What is most likely to lead to an increase in demand-pull inflation?
an increase in government spending
an increase in imports
an increase in income tax rates
an increase in sales tax
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Which country is suffering from the worst deflation?
| annual change in indicator | ||
inflation % | unemployment rate % | real GDP per capita (US$) % | |
A B C D | –5 –2 +2 +12 | +3 –2 –3 +10 | –3 –2 +1 +3 |
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What is included in the calculation of a consumer prices index (CPI)?
the price of a basket of goods and services
the price of exports and the price of imports
the value of the currency on international markets
the wages of consumers
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The table shows unemployment and inflation statistics for the US, Japan and Sweden for year 1 and year 2.
country | unemployment (%) | inflation (% pa) | ||
year 1 | year 2 | year 1 | year 2 | |
US Japan Sweden | 4.8 2.7 2.7 | 4.4 2.7 3.2 | 5.6 1.7 8.3 | 3.4 0.7 6.6 |
Which conclusion can be made from the table?
In year 1, the cost of living rose in the US.
In year 1, the same number of people were unemployed in Sweden and Japan.
The number of unemployed people decreased in all three countries.
Unemployment and inflation moved in the same direction in Japan.
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In January 2016 the rate of inflation in a country changed from 3% to 2%. In March 2016 the rate of inflation was 4%.
What happened to the price level in January and March?
| January | March |
A B C D | fell fell rose rose | fell rose fell rose |
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The graph shows the rate of inflation in a country between 2000 and 2014.
What can be concluded about average prices?
They fell throughout the period.
They peaked in 2000.
They rose each year.
They were lower in 2014 than they were in 2010.
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What might cause prices to rise because of cost-push inflation?
an increase in government spending on education
an increase in household consumption
an increase in the balance of payments surplus
an increase in wages and salaries
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In Uganda, the rate of inflation fell from 5% in 2014 to 2% in 2015.
Which conclusion can be drawn from this information?
Prices were higher in 2015 than in 2014.
The cost of living fell between 2014 and 2015.
The standard of living fell between 2014 and 2015.
Ugandan citizens were better off in 2015 than 2014.
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Four groups who are affected by changing economic conditions are creditors, debtors, exporters and importers.
Which pair is most likely to be disadvantaged by a high rate of inflation?
creditors and exporters
creditors and importers
debtors and exporters
debtors and importers
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