Question

1) Demand pull inflation occurs when the:

• price of necessity goods increases suddenly.

• price level changes in response to changes in the business cycle.

• business cycle becomes sporadic and unpredictable.

• price of a key input increases suddenly.

2) While the __________ is not important, the _________ can have a big effect on economic behavior.

• price level; predictable change in the price level

• predictable change in the price level; price level

• price level; unpredicted change in the price level

• unpredicted change in the price level; price level

3) When real rates of interest are negative, borrowers:

• benefit, because the value of their debt increases.

• suffer, because the value of their debt increases.

• suffer, because the value of their debt declines.

• benefit, because the value of their debt declines.

4) Unexpected high inflation redistributes wealth from:

• those who save to those who borrow.

• banks to those who save.

• those who borrow to those who save.

• those who borrow to banks.

5) When banks hold excess reserves the:

• money multiplier underestimates how much money will be created in the economy.

• money multiplier overestimates how much money will be created in the economy.

• reserve ratio is not fully functioning, and should be raised.

• reserve ratio is not fully functioning, and should be lowered.

Answer 1

1):-D is right option

Demand-pull inflation occurs when aggregate demand within the economy increases. Often, the economy is almost at their productive capacity and therefore instead of increase productivity and supply, there is a price increase, therefore increasing inflation.

2):-C is right option

Behavioral Economics is the study of irrational decision making it is attempts to integrate psychological theories (the motivation behind our choices) with economic theories (what we actually do)

3) :--D is right option

benefit, because the value of their debt declines.

Real Interest Rate is defined as the nominal interest rate adjusted for expected or actual inflation.

4) :-A is right option

inflation is defined as an increase in the price of goods & services that is representative of the economy as a whole

It is the upward movement in the average level of prices

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