Inflation

Question 1

Inflation:

Answer 1

An increase in the average price level

Question 2

Deflation:

Answer 2

A decrease in the average price level

Question 3

Demand - pull inflation:

Answer 3

Linked to the business cycle, increased demand in the economy puts pressure on prices.

Question 4

Cost-push inflation:

Answer 4

Increasing costs cause prices to use.

Question 5

Interest rate:

Answer 5

The cost of borrowing and the reward for saving.
Increasing the IR = costs of borrowing increasing = this reduces spending which reduces inflation

Question 7

Impact of inflation on investments:

Answer 7

Inflation erodes purchasing power and impacts investments by reducing real returns. Investors can mitigate risks with inflation-indexed securities, equities, and alternative assets like commodities.

Question 8

Impact of inflation on prices:

Answer 8

Its purchasing power falls and prices rise.

Question 9

Impact of inflation on wages:

Answer 9

Inflation reduces the purchasing power on wages.