Question 1

Inflation costs are minimized during periods of&#10;A)&#8203;hyperinflation.&#10;B)&#8203;large,unexpected deflation.&#10;C)&#8203;moderate inflation.&#10;D)rapid money growth.

Accepted Answer

During periods of moderate inflation, businesses and individuals can anticipate the rate of inflation and adjust their behaviors accordingly. This can lead to more stable pricing decisions and reduced uncertainty, which can lower inflation costs. Hyperinflation, rapid money growth and unexpected deflation can lead to higher inflation costs due to increased uncertainty and volatility in pricing.

Question 2

In order to maintain stable prices,a central bank must&#10;A)maintain low interest rates.&#10;B)keep unemployment low.&#10;C)tightly control the money supply.&#10;D)sell indexed bonds.

Accepted Answer

To maintain stable prices, a central bank must tightly control the money supply. This is because the money supply affects inflation, which ultimately affects prices. By controlling the money supply, a central bank can keep inflation in check and maintain stable prices. Maintaining low interest rates may encourage borrowing and spending, but it can also lead to inflation if too much money is released into the economy. Keeping unemployment low may be a goal of the central bank, but it is not necessarily directly related to maintaining stable prices. Selling indexed bonds may help stabilize prices over the long term, but it is not a direct means of achieving stable prices in the short term.

Question 3

Inflation costs are minimized under which inflation rate?&#10;A)&#8203;-20 percent&#10;B)5 percent&#10;C)&#8203;15 percent&#10;D)575 percent

Accepted Answer

Inflation costs are minimized under a low but positive inflation rate. A 5 percent inflation rate is generally considered healthy for an economy as it indicates moderate growth and a stable pricing environment. Extremely high inflation rates, such as 575 percent, can lead to hyperinflation, which can cause widespread economic instability and loss of trust in the currency. A negative inflation rate, such as -20 percent, indicates deflation, which can also lead to economic issues such as decreased spending and decreased investment. Therefore, the best choice for minimizing inflation costs is a moderate inflation rate, which is represented by 5 percent.

Deck 30: 3: Sec 303 Mc Conclusion