Money and Inflation
Economics · 50 practice questions
Types, characteristics and functions of money; demand for and supply of money; the Quantity Theory of Money (Fisher equation); the value of money and the price level; inflation (types, measurement, effects, control); deflation (measurement, effects, control).
- Explain the types, characteristics and functions of money.
- Identify factors affecting money demand/supply.
- Examine the relationship between the value of money and the price level.
- Examine the causes, effects and control of inflation and deflation.
- Calculate and interpret the consumer price index.
Try a few questions
- Practice question 1
If the volume of transactions (T) rises to 1,875, with M=₦2,500 and V=6 unchanged, the new price level is
- A.₦8
- B.₦10
- C.₦12
- D.₦6
Show the answer
A. ₦8
MV=PT → 2500×6 = P×1875 → P = 8.
- Practice question 2
If a worker earns a nominal wage of ₦50,000 and inflation over the year is 25%, the wage must rise to at least ___ merely to keep the real wage unchanged
- A.₦75,000
- B.₦55,000
- C.₦50,250
- D.₦62,500
Show the answer
D. ₦62,500
New wage = 50,000 × 1.25 = 62,500 to offset 25% inflation.
- Practice question 3
Deflation is best described as
- A.a persistent fall in the general price level over time
- B.a persistent rise in the general price level
- C.a one-time fall in a single good's price
- D.a rise in the money supply only
Show the answer
A. a persistent fall in the general price level over time
Deflation is the opposite of inflation: falling general prices.
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