Test: Inflation - JAMB MCQ

Inflation refers to an increase in the general price level. It is characterized by a sustained rise in the prices of goods and services over time.

Demand-pull inflation occurs when aggregate demand increases. This can happen due to factors such as increased consumer spending, government spending, or investment.

The Purchasing Managers' Index (PMI) measures business activity and is not directly related to inflation. The CPI, PPI, and GDP deflator are commonly used measures of inflation.

The Consumer Price Index (CPI) is used to measure the rate of inflation. It tracks the changes in the prices of a basket of goods and services typically consumed by households.

The base year in the Consumer Price Index (CPI) is used as a reference to compare the prices of goods and services in other years. It provides a benchmark for measuring price changes over time.

The inflation rate is calculated by subtracting the CPI of the base year from the CPI of the current year, dividing the result by the CPI of the base year, and multiplying by 100. This percentage change represents the rate of inflation.

Inflation can decrease the standard of living due to rising prices. It erodes the purchasing power of money, reduces real wages, and can increase the cost of borrowing for individuals and businesses.

Cost-push inflation occurs when there is an increase in production costs, such as the price of oil. Higher production costs lead to higher prices for goods and services, causing inflation.

Expansionary monetary policy, such as increasing interest rates or reducing the money supply, can help control inflation. By reducing the amount of money available in the economy, it aims to reduce aggregate demand and stabilize prices.

Deflation refers to a decrease in the general price level. It is characterized by a sustained decline in prices over time. Deflation can have negative effects on the economy, including reduced consumer spending and investment.