Question 1

The deflation of the 1930s impacted the U.S.economy because it led some consumers to ________ and because it ________.

Accepted Answer

The deflation of the 1930s led some consumers to postpone purchases while they waited for prices to fall even lower. This, in turn, increased the burden on borrowers as they were not able to sell goods at profitable prices.

Question 2

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

Accepted Answer

If inflation is anticipated, individuals and institutions can take steps to adjust their behavior and mitigate some of the negative effects on income distribution. For example, they may negotiate higher wages or adjust their investments to compensate for the anticipated rise in prices. Therefore, some effects of inflation on income redistribution can be avoided.

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

Describe how a lender can lose during inflation if the inflation is unanticipated and the loan is a fixed-interest-rate loan.How would a variable-interest-rate loan (one that adjusts over the contract period)eliminate these loses?

Accepted Answer

The answer of Describe how a lender can lose during...

Question 5

There are no costs to inflation if it is fully anticipated.

Accepted Answer

Even if inflation is fully anticipated, there are still costs such as menu costs (the costs of changing prices), shoe leather costs (the costs associated with more frequent transactions or withdrawals of money), and the distortions it can cause in taxation and savings.

Question 6

The problem with inflation is that as prices rise,consumers can no longer afford to buy as many goods and services.

Accepted Answer

The answer of The problem with inflation is that as...

Question 7

Inflation redistributes income to a greater extent when the inflation is unanticipated compared to when the inflation is anticipated.

Accepted Answer

When inflation is unanticipated, people are not able to adjust their wages, contracts, and saving habits accordingly, leading to a more significant redistribution of income. In contrast, when inflation is anticipated, people can adjust their behavior, and the redistribution of income is not as severe.

Question 8

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

Accepted Answer

Unanticipated inflation can lead to redistribution of income, as it affects different groups in different ways. For example, lenders may lose out while borrowers benefit, and those on fixed incomes may struggle to keep up with rising prices.

Question 9

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

Accepted Answer

The costs that firms incur by changing their prices are known as menu costs. These costs include the cost of updating and printing new menus or price lists, the cost of communicating the price changes to customers, and the cost of adjusting inventory levels.

Question 10

Explain why you would rather be a borrower during a period of unexpected rising inflation,and a lender during a period of unexpected declining inflation.

Accepted Answer

The answer of Explain why you would rather be a...

Question 11

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

Accepted Answer

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

Question 12

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...

Quiz 9: Unemployment and Inflation

The deflation of the 1930s impacted the U.S.economy because it led some consumers to and because it .