Price Stability
133 questions· page 1 of 14
Governments may have price stability as a macroeconomic objective.
What is meant by price stability?
Options
A All equilibrium prices are maintained in the long run.
B Demand-pull inflation cancels out any cost-push inflation.
C Only disinflation is present in the economy in the long run.
D Prolonged periods of inflation and deflation are avoided.
The price of a pack of six eggs rises from $1.00 to $1.32 over a year. Consumer prices, as measured by the consumer price index, rise by 10% over the same period.
What is the real price of a pack of six eggs at the end of the year?
Options
A $1.00
B $1.10
C $1.20
D $1.32
The table shows the change in the value of UK sterling over a three-month period.
| June | Sept |
|---|---|
| £1 = $1.38 | £1 = $1.32 |
What is likely to be the short-term impact of the change in the value of UK sterling on the UK economy?
Options
A increased disinflation
B increase in cost-push inflation
C more purchasing power of money
D reduced demand-pull inflation
Price stability can be said to occur if the measured value of the consumer prices index (CPI) is unchanged during the year.
Which statement is correct?
Options
A For price stability to occur, there must be no changes in prices of any products.
B For price stability to occur, the number of products whose prices rise must exactly match the number whose prices fall.
C If some prices rise and others fall, there cannot be price stability.
D Different weightings of items used in the calculation of CPI mean that price stability can occur in many ways.
An economy is experiencing a period of deflation.
What must be happening?
Options
A The average price level is falling.
B The output of the economy is falling.
C The rate of inflation is falling.
D The real value of money is falling.
What might be a consequence of a fall in the domestic price level?
Options
A imports become more competitive
B interest rates increase
C the purchasing power of savings falls
D the real value of incomes increases
The diagram shows changes in a country’s price level over a number of years.
During which period of time did only disinflation occur?
Options
A from the start of 2020 to the end of 2025
B from the start of 2021 to the end of 2022
C from the start of 2021 to the end of 2023
D from the start of 2023 to the end of 2024
Which increase makes cost-push inflation less likely to happen?
Options
A indirect tax rates
B raw material shortages
C the foreign exchange rate
D trade union power
An economy has both increasing imported raw material prices and demand-pull inflation.
Which combination of policies is most likely to help its government achieve its macroeconomic objective of price stability?
Options
| budget deficit | exchange rate | rate of interest | |
|---|---|---|---|
| A | decreases | depreciates | decreases |
| B | decreases | appreciates | increases |
| C | increases | depreciates | decreases |
| D | increases | appreciates | increases |
What is least likely to cause a simultaneous increase in demand-pull and cost-push inflation?
Options
A depreciation of currency
B increased import tariffs
C decreased spending on infrastructure
D increased wages