Test yourself!

Here are 3 MCQ questions for you to see if you truly understand what is inflation and inflationary growth!

1.   Which of the following is not a characteristic of inflationary growth?

      a. Actual growth exceeds potential growth in the economy.

      b. Rise in the general price level of goods and services.

      c. Production is halted.

      d. Economic growth still occurs but with inflation.

 

2.   Inflationary growth causes all of the following, except _______.

      a. Uncertainty

      b. Hoarding

      c. Increase in purchasing power per unit of money

      d. Hyperinflation 

3.   Policies to tackle inflationary growth can focus on _______.

     a. Implementing a price floor

     b. Currency appreciation

     c. Increasing aggregate demand

     d. Decreasing aggregate supply

 How did you score?

0/3-- This is bad! I suggest you re-read all of the posts and attempt again!

1/3-- Decent,, but can be much better! You know some of your stuff, but not all! Do continue reading up

2/3-- Not bad! You have 66%! You understand the concepts of inflation and inflationary growth, but not yet perfect!

3/3-- Perfection! You are a true economist! But do read up on other aspects of economics as well!

Answers: 1)C 2)C 3)B

Solutions! How are we going to solve inflation?

In short, here's what's within the MAS' consideration in dealing with inflationary growth

1.    Solutions

Contractionary Fiscal Policy

Reducing government spending (G) on public infrastructure would decrease aggregate expenditure (AE) and aggregate demand (AD), solving demand-pull inflation.

By increasing corporate tax, firms reap less profits from their business as a larger portion of revenue is taxed. This discourages investment (I). Similarly, by increasing personal income tax, consumers would have less disposable income, which discourages consumption (C). Both decrease AD and curb demand-pull inflation.

Contractionary Monetary Policy

Increasing interest rates raises borrowing costs and encourages saving, thus discouraging (I) and (C), solving demand-pull inflation.

Price Ceiling

Imposing a price ceiling artificially maintains prices at a reasonably low level.

Exchange Rate Policies

By appreciating the domestic currency, exports become more expensive in terms of foreign currency, so they are in lower demand, decreasing AD. It also becomes cheaper to import raw materials, decreasing the cost of production and thus solving cost-push inflation. 

  What can we do?!

But wait! You as consumers may not be able to do much to solve inflation, but you sure can do certain stuff to save your cash from devaluing! Some possibilities include investing in non productive goods such as previous metals and jewellery like Gold and silver. The prices of these rares based USD, hence by buying them using your own countries currency, you are able to keep your savings safely without worrying that they may deppreciate greatly! Other options include real estate and capital equipments!

We have to come to an end to our economics module on inflation and inflationary growth. We hope you consumers have learnt a great deal from these and now know why the price of your rice is rising and why the portion of chicken from your favourite chicken rice stall is now so little! Signing off, economic enthusiasts from the Monetary Authority of Singapore (MAS)! 

Comments? Questions? Ask them below and we would get back to you as soon as possible!