What is the relationship between interest rates and inflation?

Interest rates have no impact on inflation.

Higher inflation leads to higher interest rates.

Higher inflation leads to lower interest rates.

Inflation and interest rates are unrelated.

What impact do lower interest rates have on borrowing and mortgage payments?

Lower interest rates reduce borrowing and mortgage payments.

Lower interest rates increase borrowing and mortgage payments.

Lower interest rates have no impact on borrowing.

Lower interest rates lead to lower mortgage payments only.

What happens to consumer spending when interest rates increase?

Consumer spending remains unchanged.

Consumer spending becomes unpredictable.

What does a negative real interest rate mean?

The nominal interest rate is higher than inflation.

The base interest rate is lower than the inflation rate.

The inflation rate is higher than the base interest rate.

The nominal interest rate is equal to inflation.

Why might cutting interest rates be ineffective in boosting economic growth?

People don't notice interest rate cuts.

Lower interest rates don't affect consumer behavior.

House price falls counteract the impact of lower interest rates.

Interest rate cuts only benefit savers.

What is the "shoe leather cost" of inflation?

The cost of buying new shoes during inflation.

The cost of saving money in banks during inflation.

The cost of frequent trips to the bank due to eroding value of money.

The cost of producing more money during inflation.

Why might a central bank not increase interest rates despite rising inflation?

They believe inflation is temporary due to cost-push factors.

They want to push the economy into recession.

They want to reduce the money supply.

Why does inflation induce tax distortions?

Tax rates become unpredictable during inflation.

Inflation reduces the overall tax revenue for the government.

Tax laws often fail to consider the effects of inflation.

Inflation leads to higher income for individuals, affecting their tax liability.

What are the three components of the natural rate of unemployment?

Cyclical, frictional, and structural unemployment.

Seasonal, long-term, and surplus unemployment.

Classical, real, and underemployment.

Frictional, structural, and surplus unemployment.

Theory of Inflation - 1 Free MCQ Practice Test with Solutions

	Macro Economics 59 videos\|61 docs\|29 tests

	Macro Economics 59 videos\|61 docs\|29 tests

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