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Q1) In a fully employed economy, which of the following is most likely to lead to demand-pull inflation?

A1) Increased prices for essential imports (INCORRECT)

(The correct answer is: Budget deficit)

(The reason is: A budget deficit is likely to lead to demand-pull inflation because an increase in government spending will cause the AD curve to shift outward causing demand-pull inflation.)

Q2) All of the following would be described as an initial source of demand-pull inflation, except:

A2) workers' wages rising (CORRECT)

(The reason is: Workers' wages rising would be described as an initial source of cost-push inflation NOT demand-pull inflation.)

Q3) A rise in the price of a particular product could be a result of which of the following?

A3) An increase in quantity demanded (INCORRECT)

(The correct answer is: A decrease in supply)

(The reason is: Price will rise in a particular market if there is a decrease in supply or an increase in demand.)

Q4) Inflation caused by an inward shift of the aggregate supply curve is termed:

A4) imported inflation (INCORRECT)

(The correct answer is: cost-push inflation)

(The reason is: Inflation caused by an inward shift of the aggregate supply curve is termed costpush inflation.)

Q5) Inflation caused by an outward shift of the aggregate demand curve is termed:

A5) demand-pull inflation (CORRECT)

(The reason is: Inflation caused by an outward shift of the aggregate demand curve is termed demand-pull inflation.)

Q6) Inflation caused by increases in aggregate demand is:

A6) demand-pull inflation (CORRECT)

(The reason is: Inflation caused by an increase in aggregate demand is demand-pull inflation.)

Q7) Aggregate supply is:

A7) the sum of all firms supply curves at each price (INCORRECT)

(The correct answer is: total production of all firms in the economy)

(The reason is: Aggregate supply is total production of all firms in the economy.)

Q8) Demand-pull inflation occurs when:

A8) any of the other options (INCORRECT)

(The correct answer is: aggregate demand exceeds aggregate supply at current prices)

(The reason is: Demand-pull inflation occurs when aggregate demand exceeds aggregate supply at current prices.)

Q9) Which of the following situations would lead to demand-pull inflation?

A9) A spending spree by workers who have just received tax cuts (CORRECT)

(The reason is: A spending spree by workers who have just received tax cuts would lead to demand-pull inflation because consumption spending would increase causing the AD curve to shift outwards and resulting in an increase in the general price level.)

Q10) Which of the following is a cause of cost-push inflation?

A10) A fall in workers' productivity (CORRECT)

(The reason is: Cost-push inflation occurs when aggregate supply decreases. Aggregate supply will decrease if there is a fall in workers productivity.) Q1) What does the following diagram show?

A1) An increase in the price of a particular product (CORRECT)

(The reason is: The diagram shows an increase in the price of a particular product because the price increases from p to p'.)

Q2) A rise in the price of a particular product could be a result of which of the following?

A2) A decrease in supply (CORRECT)

(The reason is: Price will rise in a particular market if there is a decrease in supply or an increase in demand.)

Q3) What does the following diagram show?

A3) An increase in the general price level (CORRECT)

(The reason is: The diagram shows an increase in the general price level because the price level increases from PL to PL'.)

Q4) Which event, from the list below, is likely to cause cost-push inflation?

A4) An increase in wages (CORRECT)

(The reason is: An increase in wages is likely to cause cost-push inflation because the costs of production will increase. As costs of production increase, profits will fall and the AS curve will shift inward and cause cost-push inflation.)

Q5) This diagram best illustrates what type of inflation?

A5) Cost-push inflation (CORRECT)

(The reason is: This diagram best illustrates cost-push inflation because cost-push inflation occurs when aggregate supply decreases.)

Q6) Which of the following events could not cause this type of inflation?

A6) A government budget deficit (INCORRECT)

(The correct answer is: A general wage increase)

(The reason is: This diagram best illustrates demand-pull inflation because demand-pull inflation occurs when aggregate demand increases. Possible causes of demand-pull inflation are direct tax cuts, an increase in business confidence and a government budget deficit. A general wage increase will decrease aggregate supply.)

Q7) Aggregate supply is:

A7) total production of all firms in the economy (CORRECT)

(The reason is: Aggregate supply is total production of all firms in the economy.)

Q8) In a fully employed economy, which of the following is most likely to lead to demand-pull inflation?

A8) Increased prices for essential imports (INCORRECT)

(The correct answer is: Budget deficit)

(The reason is: A budget deficit is likely to lead to demand-pull inflation because an increase in government spending will cause the AD curve to shift outward causing demand-pull inflation.)

Q9) All of the following would be described as an initial source of demand-pull inflation, except:

A9) workers' wages rising (CORRECT)

(The reason is: Workers' wages rising would be described as an initial source of cost-push inflation NOT demand-pull inflation.)

Q10) Which of the following is a cause of cost-push inflation?

A10) A fall in workers' productivity (CORRECT)

(The reason is: Cost-push inflation occurs when aggregate supply decreases. Aggregate supply will decrease if there is a fall in workers productivity.) Q1) Which of the following situations would lead to demand-pull inflation?

A1) The New Zealand dollar appreciates (INCORRECT)

(The correct answer is: A net migration gain)

(The reason is: A net migration gain would lead to demand-pull inflation because consumption spending would increase as the new migrants set up homes and bought white wear and furniture.)

Q2) This diagram best illustrates what type of inflation?

A2) Cost-push inflation (CORRECT)

(The reason is: This diagram best illustrates cost-push inflation because cost-push inflation occurs when aggregate supply decreases.)

Q3) A rise in the price of a particular product could be a result of which of the following?

A3) An increase in government spending (INCORRECT)

(The correct answer is: A decrease in the price of a complement)

(The reason is: Price will rise in a particular market if there is a decrease in supply or an increase in demand. A decrease in the price of a complement will cause an increase in demand and therefore a price rise in a particular product.)

Q4) Which of the following events could not cause this type of inflation?

A4) A government budget deficit (INCORRECT)

(The correct answer is: A general wage increase)

(The reason is: This diagram best illustrates demand-pull inflation because demand-pull inflation occurs when aggregate demand increases. Possible causes of demand-pull inflation are direct tax cuts, an increase in business confidence and a government budget deficit. A general wage increase will decrease aggregate supply.)

Q5) Which of the following is a cause of demand-pull inflation?

A5) An increase in indirect tax (INCORRECT)

(The correct answer is: An increase in business confidence)

(The reason is: Demand-pull inflation occurs when aggregate demand increases. An increase in business confidence will mean that firms will increase investment causing aggregate demand to increase.)

Q6) Inflation means that:

A6) the general price level is rising (CORRECT)

(The reason is: Inflation means that the general (average) price level is rising.)

Q7) All of the following would be described as an initial source of demand-pull inflation, except:

A7) workers' wages rising (CORRECT)

(The reason is: Workers' wages rising would be described as an initial source of cost-push inflation NOT demand-pull inflation.)

Q8) Inflationary expectations will cause the:

A8) AD curve to shift outwards as households buy now rather than later (CORRECT)

(The reason is: Inflationary expectations will cause the AD curve to shift outwards as households buy now rather than later when the prices of goods and services have increased.)

Q9) An inward shift of the aggregate supply curve causing the general price level to rise is termed:

A9) cost-push inflation (CORRECT)

(The reason is: An inward shift of the aggregate supply curve causing the general (average) price level to rise is termed cost-push inflation.)

Q10) What is the term given when households are keen to buy now, rather than later when prices have risen?

A10) Inflationary expectations (CORRECT)

(The reason is: Inflationary expectations is the term given to the idea that households are keen to buy now, rather than later when prices have increased.) Q1) Which of the following will result in an increase in cost-push inflation?

A1) A depreciation of the $NZ (CORRECT)

(The reason is: A depreciation of the $NZ will result in an increase in cost-push inflation because the cost of raw materials will increase. As costs of production increase, profits will fall and the AS curve will shift inward and cause cost-push inflation.)

Q2) This diagram best illustrates what type of inflation?

A2) Cost-push inflation (CORRECT)

(The reason is: This diagram best illustrates cost-push inflation because cost-push inflation occurs when aggregate supply decreases.)

Q3) Demand for a product will increase which will cause an increase in the price of a particular product if:

A3) the price of a substitute increases (CORRECT)

(The reason is: Substitutes are products that can be used in place of each other. When the price of a substitute increases there will be a decrease in quantity demanded and the alternative product will see an increase in demand. An increase in demand for the alternative product will cause an increase in price of the product in the market.)

Q4) Which of the following events could not cause this type of inflation?

A4) A general wage increase (CORRECT)

(The reason is: This diagram best illustrates demand-pull inflation because demand-pull inflation occurs when aggregate demand increases. Possible causes of demand-pull inflation are direct tax cuts, an increase in business confidence and a government budget deficit. A general wage increase will decrease aggregate supply.)

Q5) Which of the following situations would lead to demand-pull inflation?

A5) A spending spree by workers who have just received tax cuts (CORRECT)

(The reason is: A spending spree by workers who have just received tax cuts would lead to demand-pull inflation because consumption spending would increase causing the AD curve to shift outwards and resulting in an increase in the general price level.)

Q6) A rise in the price of a particular product could be a result of which of the following?

A6) An increase in demand (CORRECT)

(The reason is: Price will rise in a particular market if there is a decrease in supply or an increase in demand.)

Q7) A rise in the price of a particular product could be a result of which of the following?

A7) A decrease in supply (CORRECT)

(The reason is: Price will rise in a particular market if there is a decrease in supply or an increase in demand.)

Q8) Which of the following would be described as an initial source of cost-push inflation?

A8) Unions get wage increase (CORRECT)

(The reason is: Unions getting wage increase would be described as an initial source of cost-push inflation.)

Q9) A rise in the general price level could be a result of which of the following?

A9) An increase in government spending (CORRECT)

(The reason is: An increase in government spending is part of expansionary fiscal policy and is aimed to stimulate economic activity and increase aggregate demand. As aggregate demand increases so will the general price level.)

Q10) Which diagram correctly illustrates cost-push inflation?

A10) C (CORRECT)

(The reason is: Diagram C correctly illustrates cost-push inflation because the AS curve shifts inward. Diagram D illustrates demand-pull inflation as AD shifts outward. Diagrams A and B are for a single product and a price change for a particular product rather than a change in the general price level.) Q1) Which of the following is a cause of demand-pull inflation?

A1) An increase in business confidence (CORRECT)

(The reason is: Demand-pull inflation occurs when aggregate demand increases. An increase in business confidence will mean that firms will increase investment causing aggregate demand to increase.)

Q2) Which of the following situations would lead to demand-pull inflation?

A2) A spending spree by workers who have just received tax cuts (CORRECT)

(The reason is: A spending spree by workers who have just received tax cuts would lead to demand-pull inflation because consumption spending would increase causing the AD curve to shift outwards and resulting in an increase in the general price level.)

Q3) This diagram best illustrates what type of inflation?

A3) Cost-push inflation (CORRECT)

(The reason is: This diagram best illustrates cost-push inflation because cost-push inflation occurs when aggregate supply decreases.)

Q4) A rise in the general price level could be a result of which of the following?

A4) An increase in government spending (CORRECT)

(The reason is: An increase in government spending is part of expansionary fiscal policy and is aimed to stimulate economic activity and increase aggregate demand. As aggregate demand increases so will the general price level.)

Q5) Inflation caused by an inward shift of the aggregate supply curve is termed:

A5) cost-push inflation (CORRECT)

(The reason is: Inflation caused by an inward shift of the aggregate supply curve is termed costpush inflation.)

Q6) Which of the following situations would lead to demand-pull inflation?

A6) A net migration gain (CORRECT)

(The reason is: A net migration gain would lead to demand-pull inflation because consumption spending would increase as the new migrants set up homes and bought white wear and furniture.)

Q7) An inward shift of the aggregate supply curve causing the general price level to rise is termed:

A7) cost-push inflation (CORRECT)

(The reason is: An inward shift of the aggregate supply curve causing the general (average) price level to rise is termed cost-push inflation.)

Q8) An outward shift of the aggregate demand curve causing the general price to rise is termed:

A8) demand-pull inflation (CORRECT)

(The reason is: An outward shift of the aggregate demand curve causing the general price to rise is termed demand-pull inflation.)

Q9) Inflation caused by increases in aggregate demand is:

A9) demand-pull inflation (CORRECT)

(The reason is: Inflation caused by an increase in aggregate demand is demand-pull inflation.)

Q10) All the following would be described as an initial source of cost-push inflation except:

A10) wages increasing (INCORRECT)

(The correct answer is: direct tax cuts)

(The reason is: Direct tax cuts would be described as an initial source of demand-pull inflation NOT cost-push inflation.)