which of the following statements about inflation are true? check all that applies
a) policy makers also worry about a negative inflation rate, or deflation
b) painful government actions may sometimes be necessary to bring down a high inflation rate.
c) A moderately high inflation rate of 12% bears no cost to society.
d) Over the last 90 years, the inflation rate in the U.S. has been most negative.
e) The purchasing power of currency declines rapidly with high inflation rates.
Explain if possible.
Thank you in advance!
a,b, and, e.
The correct statements about inflation are:
a) Policy makers also worry about a negative inflation rate, or deflation. Deflation, or a decrease in the overall price level, can have negative economic consequences such as reduced investment and increased interest rates, which can lead to a decrease in consumer spending and economic growth.
b) Painful government actions may sometimes be necessary to bring down a high inflation rate. High inflation rates can be detrimental to an economy, leading to reduced purchasing power, increased costs for businesses, and uncertainty for consumers. In such cases, governments may need to implement measures, like tightening monetary policy or reducing government spending, which can be difficult and cause short-term pain but are aimed at controlling inflation in the long run.
e) The purchasing power of currency declines rapidly with high inflation rates. When there is a high inflation rate, the prices of goods and services tend to rise rapidly. This means that the same amount of currency can buy fewer goods and services, leading to a decrease in purchasing power. Individuals and businesses may have to spend more money to maintain their standard of living or to purchase the same goods and services.
The statements that are not true:
c) A moderately high inflation rate of 12% bears no cost to society. A moderately high inflation rate, such as 12%, can have significant costs for society. It can erode the value of savings, reduce real wages, create uncertainty in the economy, and disrupt economic planning and investment decisions.
d) Over the last 90 years, the inflation rate in the U.S. has been most negative. This statement is not true. The inflation rate in the U.S. has generally been positive, with periods of low inflation and occasional periods of higher inflation. Negative inflation, or deflation, has been relatively rare in the U.S. economy.
a) Policy makers also worry about a negative inflation rate, or deflation: This statement is true. Policy makers, such as central banks, are concerned about both high inflation and deflation. Deflation is a decrease in the general price level of goods and services, which can lead to a decline in economic activity, higher unemployment, and difficulty in repaying debt.
b) Painful government actions may sometimes be necessary to bring down a high inflation rate: This statement is true. When faced with high inflation, governments may implement austerity measures, such as reducing government spending or increasing taxes, to curb inflation. These actions can be painful for the economy and individuals in the short term but are believed to be necessary to stabilize prices.
c) A moderately high inflation rate of 12% bears no cost to society: This statement is false. A moderately high inflation rate of 12% can have significant costs to society. It erodes the purchasing power of money, making goods and services more expensive over time. It also introduces uncertainty into economic planning and can negatively impact savings and investments.
d) Over the last 90 years, the inflation rate in the U.S. has been most negative: This statement is false. The inflation rate in the U.S. over the last 90 years has generally been positive, meaning there has been inflation rather than deflation. However, there have been periods of low inflation or even negative inflation (deflation), such as during economic recessions.
e) The purchasing power of currency declines rapidly with high inflation rates: This statement is true. High inflation erodes the purchasing power of currency, making it worth less over time. As prices of goods and services increase, the same amount of money can buy fewer goods, leading to a decline in the purchasing power of currency. This can have negative consequences for individuals, businesses, and the overall economy.