inflation and deflation - Question Bank

1

Q&A

Medium

Discuss whether or not inflation is always a disadvantage to an economy．

Answer:

略

Explanation:

2

Q&A

Easy

Analyse how the level and pattern of household spending may change when GDP decreases．

Answer:

略

Explanation:

3

Q&A

Medium

Analyse how an increase in income tax can affect a country’s inflation rate．

Answer:

略

Explanation:

4

Q&A

Hard

Discuss whether or not inflation will harm producers．

Answer:

略

Explanation:

5

CHOICE

Hard

Which combination is necessary for the construction of a consumer prices index？( ) $$ \begin{array}{|c|c|c|c|} \hline & \text { a base year } & \text { price stability } & \text { weights } \\ \hline \text { A } & \text { yes } & \text { yes } & \text { yes } \\ \text { B } & \text { yes } & \text { no } & \text { yes } \\ \text { C } & \text { yes } & \text { no } & \text { no } \\ \text { D } & \text { no } & \text { yes } & \text { yes } \\ \hline \end{array} $$

A. A

B. B

C. C

D. D

Answer:

B

Explanation:

This question is about determining the necessary components for constructing a consumer price index (CPI).

A consumer price index is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care.

To construct a CPI, the following components are necessary:

1. A Base Year: This is essential as it serves as a point of reference for comparing changes in price levels over time.

2. Weights: These are crucial because they reflect the relative importance of different items in the basket of goods and services.

Weights are used to calculate the average price level.

3. Price Stability: While price stability is desirable for economic analysis, it is not a necessary component for constructing a CPI.

The CPI is designed to measure changes in price levels, regardless of whether prices are stable or not.

Given these points, the correct combination for constructing a CPI is having a base year and weights, but price stability is not necessary.

Therefore, the correct answer is B: Yes to a base year, No to price stability, and Yes to weights.