Definition
What is hyperinflation?
a very rapid and large rise in the price level
During periods of hyperinflation, money ceases to function effectively as a medium of exchange.
True
If a woman borrows 50$, and the inflation rate is 12%, how much would she repay to gain the same amount of purchasing power back?
62$
What are menu-costs?
costs involved in having to change prices as a result of inflation
Inflation always harms businesses because it increases their costs.
False
Explanation: While inflation can increase costs (like raw materials), businesses may also benefit. They can raise their prices to maintain profit margins, and if they owe money to banks, the real value of their debt decreases
How does inflation cause uncertainty in households and firms?
It will be difficult for households and firms to plan ahead as they are unsure about future prices. It also makes it hard for them to judge the right price to pay for their products as the economy is unstable
What are shoe-leather costs?
costs involved in moving money around to gain high interest rates
A fall in the value of money is the same thing as inflation.
True
Explanation: Inflation is defined as a sustained increase in the general price level, which means the purchasing power (value) of money falls. You can buy less with the same amount of money.
What is the term called when the government does not adjust tax brackets in line with inflation?
Fiscal drag
What is index linking?
changing payments in line with changes in the inflation rate