Inflation and Unemployment: Causes, Consequences, and Policy Responses

Question 1

Which factor is most likely to contribute to cost-push inflation?

Accepted Answer

Rapidly rising wages

Answer

Technological advancements

Answer

Increased consumer spending

Answer

Government subsidies

Question 2

Which of the following is a potential consequence of demand-pull inflation?

Accepted Answer

Higher price levels

Answer

Lower unemployment

Answer

Deficit in the balance of payments

Answer

Appreciation of domestic currency

Question 3

Which of the following is **not** a cause of inflation?

Accepted Answer

Technological advancements

Answer

Excess demand

Answer

Increasing input costs (cost-push factors)

Answer

Expansive monetary policy

Question 4

Which of the following is a measure of the rate of overall price increases in an economy?

Accepted Answer

Inflation rate

Answer

Unemployment rate

Answer

GDP growth rate

Answer

Exchange rate

Question 5

Differentiate between demand-pull inflation and cost-push inflation:

Accepted Answer

Demand-pull inflation occurs due to excess spending, while cost-push inflation results from rising input costs.

Answer

Cost-push inflation occurs due to excess spending, while demand-pull inflation results from rising input costs.

Answer

They are the same type of inflation.

Answer

They both lead to lower unemployment.

Question 6

Name the economic model that suggests a trade-off between inflation and unemployment:

Accepted Answer

Phillips curve

Answer

Keynesian model

Answer

Monetarist model

Answer

Classical model

Question 7

What is the primary goal of monetary policy in the United Kingdom, as set by the Bank of England?

Accepted Answer

To maintain price stability

Answer

To promote economic growth

Question 8

Which of the following is NOT a type of fiscal policy tool?

Accepted Answer

Interest rate changes

Answer

Income tax reduction

Question 9

What is the primary role of the Bank of England in addressing inflation in the United Kingdom?

Accepted Answer

Setting interest rates

Answer

Printing money

Question 10

Which of the following is a potential cause of 'cost-push' inflation?

Accepted Answer

Increased raw material prices

Answer

Higher consumer demand

Question 11

What is the main advantage of using fiscal policy over monetary policy to address unemployment in the United Kingdom?

Accepted Answer

Fiscal policy can be targeted at specific sectors or regions.

Answer

Fiscal policy has a faster impact on the economy.

Question 12

Which of the following is NOT a component of the UK Consumer Prices Index (CPI)?

Accepted Answer

Education expenses

Answer

Food and beverages

Answer

Housing

Answer

Transport

Question 13

Which fiscal policy tool is most likely to reduce unemployment?

Accepted Answer

Increasing government spending

Answer

Cutting taxes

Answer

Lowering interest rates

Answer

Raising taxes

Question 14

What is the main difference between demand-pull inflation and cost-push inflation?

Accepted Answer

Demand-pull inflation is caused by an increase in aggregate demand, while cost-push inflation is caused by a decrease in aggregate supply

Answer

Demand-pull inflation is caused by government spending, while cost-push inflation is caused by supply shocks

Answer

Demand-pull inflation causes lower prices, while cost-push inflation causes higher prices

Answer

Demand-pull inflation is more common in developing economies, while cost-push inflation is more common in developed economies

Question 15

Which of the following is NOT a consequence of high unemployment?

Accepted Answer

Improved labor productivity

Answer

Reduced tax revenue

Answer

Increased social unrest

Answer

Lower economic growth

Question 16

What is the role of the Bank of England in controlling inflation?

Accepted Answer

Setting interest rates

Answer

Printing money

Answer

Setting fiscal policy

Answer

Controlling the exchange rate

Question 17

What is the main challenge faced by policymakers when trying to control both inflation and unemployment?

Accepted Answer

The Phillips curve trade-off

Answer

The time lag in policy transmission

Answer

The uncertainty of economic forecasts

Answer

The political constraints on policymaking

Question 18

What are the main objectives of the UK government's macroeconomic policy framework?

Accepted Answer

To maintain stable economic growth and low inflation

Answer

To reduce the budget deficit

Answer

To create jobs

Answer

To increase exports

Question 19

When tackling inflation, which of the following is a key advantage of fiscal policy?

Accepted Answer

Fiscal policy can directly impact overall economic demand.

Answer

Fiscal policy can precisely target specific economic sectors.

Answer

Fiscal policy can be implemented more quickly than monetary policy.

Answer

Fiscal policy has a negligible effect on economic growth.

Question 20

Which of the following is NOT a demand-pull factor that can cause inflation?

Accepted Answer

Increased exports

Answer

Increased government spending

Answer

Increased money supply

Answer

Rising wages

Question 21

What is the key difference between cyclical and structural unemployment?

Accepted Answer

Cyclical unemployment is caused by temporary economic downturns, while structural unemployment is caused by long-term changes in the economy.

Answer

Cyclical unemployment is caused by changes in demand, while structural unemployment is caused by changes in supply.

Answer

Cyclical unemployment is higher than structural unemployment.

Answer

Structural unemployment is caused by temporary economic downturns, while cyclical unemployment is caused by long-term changes in the economy.

Question 22

Which of the following policies would the government be most likely to use to combat cost-push inflation?

Accepted Answer

Control wages and prices

Answer

Reduce interest rates

Answer

Increase taxes

Answer

Reduce government spending

Question 23

What is the primary disadvantage of using deflation as a tool to reduce unemployment?

Accepted Answer

It can lead to a decline in investment and economic growth.

Answer

It can discourage consumers from spending.

Answer

It can make it more difficult for businesses to borrow money.

Answer

It can lead to a fall in the value of money.

Question 24

Which of the following is the most widely used indicator of the overall level of inflation in an economy?

Accepted Answer

Consumer Price Index (CPI)

Answer

Retail Price Index (RPI)

Answer

Producer Price Index (PPI)

Answer

Wholesale Price Index (WPI)

Question 25

What does the Phillips curve represent?

Accepted Answer

The graphical relationship between inflation and unemployment.

Answer

The mathematical relationship between inflation and interest rates.

Answer

The policy tool used by governments to control inflation.

Answer

The theory that explains the relationship between inflation and economic growth.

Question 26

What is the main challenge in achieving a low level of both inflation and unemployment?

Accepted Answer

The trade-off between the two.

Answer

The difficulty in forecasting economic conditions.

Answer

The lack of government policies to address both.

Answer

The impact of external factors on the economy.

Question 27

Which of the following is NOT a consequence of inflation?

Accepted Answer

Higher economic growth

Answer

Reduced purchasing power of money

Answer

Increased interest rates

Answer

Higher profits for businesses

Question 28

Which of the following is a key assumption of the Phillips curve?

Accepted Answer

That there is a short-run trade-off between inflation and unemployment.

Answer

That the government can precisely control both inflation and unemployment.

Answer

That the economy is always operating at full capacity.

Answer

That the relationship between inflation and unemployment is stable over time.

Question 29

Analyze the ethical considerations in prioritizing low inflation or low unemployment in economic policy. Discuss how these priorities impact different societal groups.

Accepted Answer

Ethical implications vary based on specific circumstances and the differential effects of inflation and unemployment on societal groups.

Answer

Low inflation should be prioritized ethically because it benefits all individuals in society.

Answer

Low unemployment should be prioritized ethically because it ensures employment for all.

Question 30

What is an advantage of targeting a specific inflation rate?

Accepted Answer

Lower uncertainty

Answer

Higher economic growth

Answer

Elimination of unemployment

Question 31

What is the term for the graphical representation of the relationship between unemployment and inflation?

Accepted Answer

Phillips curve

Answer

Laffer curve

Answer

Keynesian cross

Question 32

What is the fundamental distinction between demand-pull inflation and cost-push inflation?

Accepted Answer

Demand-pull inflation stems from increased demand, while cost-push inflation results from increased costs.

Answer

Demand-pull inflation is caused by decreased supply, while cost-push inflation is caused by increased supply.

Question 33

Which of the following is NOT a measure of inflation?

Accepted Answer

Gross Domestic Product (GDP)

Answer

Consumer Price Index (CPI)

Answer

Retail Price Index (RPI)

Answer

Wholesale Price Index (WPI)

Question 34

What is a potential disadvantage of reducing unemployment?

Accepted Answer

Increased inflation

Answer

Reduced foreign investment

Answer

Lower productivity