Question 1

Describe how inflation can be costly even if it is anticipated.

Accepted Answer

The answer of Describe how inflation can be costly even...

Question 2

The costs to firms of changing prices are called menu costs.

Accepted Answer

Menu costs refer to the expenses incurred by firms in changing their prices, such as the cost of printing new price lists or updating electronic systems.

Question 3

When the actual inflation rate turns out to be greater than the expected inflation rate,who gains -- the borrower or the lender -- and who loses? Explain why.

Accepted Answer

The answer of When the actual inflation rate turns out...

Question 4

The recession of 2007-2009 and its aftermath had different effects on various sectors of the economy.Which of the following sectors of the U.S.economy had the highest unemployment rate in August 2011,topping 12 percent?

Accepted Answer

The sector with the highest unemployment rate in August 2011, topping 12 percent, was construction. This sector was particularly hard hit by the recession as it relies heavily on building and housing projects, which were severely impacted during the recession.

Question 5

If inflation is anticipated,some effects of inflation on the redistribution of income can be avoided.

Accepted Answer

If inflation is anticipated, individuals and organizations can make adjustments beforehand such as negotiating wage and price increases, investing in higher-yielding assets or stocks, and taking out loans with fixed interest rates, which can help mitigate the effects of inflation on the redistribution of income.

Question 6

Explain whether you agree or disagree with the following statement: "The reason that inflation is bad is because it increases the cost of living the costs of goods and services we buy -- without increasing income in general."

Accepted Answer

The answer of Explain whether you agree or disagree with...

Question 7

If an economy experiences deflation,the real interest rate

Accepted Answer

During deflation, the prices of goods and services decrease, which means that the purchasing power of money increases. If the nominal interest rate remains constant, the real interest rate (which takes into account the inflation rate) will then be greater than the nominal interest rate because the purchasing power of money has increased.

Question 8

If inflation is unanticipated,no redistribution of income can occur.

Accepted Answer

Unanticipated inflation can lead to a redistribution of income because some individuals or groups may benefit from it (e.g. those with fixed debts) while others may be negatively affected (e.g. those on fixed incomes).

Quiz 9: Unemployment and Inflation