Inflation Questions and Answers

Inflation reduces purchasing power when prices rise.

1. General rise in prices over time
2. Stock prices always fall
3. Taxes disappear
4. Credit scores reset

Real rates show purchasing-power return.

1. Nominal rate minus inflation
2. Credit limit divided by rent
3. Salary plus taxes
4. Mortgage principal only

Compounding grows balances because returns build on prior returns.

1. Interest earns interest over time
2. Interest is paid only once forever
3. Taxes compound daily always
4. Debt vanishes

Simple interest does not add prior interest into principal.

1. Original principal
2. Future tax refund
3. Credit score
4. Monthly groceries

Policy rates influence broader borrowing and saving costs.

1. Loan rates and savings yields
2. Only grocery labels
3. Only internet speed
4. Only account passwords

Inflation lowers purchasing power if income or savings do not keep pace.

1. What money can buy
2. Amount of cash color
3. Bank branch count
4. Credit report age

Deflation can have complex economic effects despite lower prices.

1. General decline in prices
2. Always good for borrowers
3. Tax refund only
4. Insurance coverage

Variable-rate payments can increase as benchmark rates move up.

1. Rates rise
2. Rates stay fixed forever
3. Principal is zero
4. No payment is due

Approximate real return equals nominal return minus inflation.

1. 4 percent
2. 10 percent
3. 3 percent
4. 7 percent

A dollar buys less when the price level doubles.

1. Falls by about half
2. Doubles
3. Stays the same
4. Becomes tax-free

Inflation can reduce the real burden of fixed nominal payments.

1. Repayments are made with dollars worth less in real terms
2. Nominal debt doubles automatically
3. Interest rate rises daily
4. Loan is canceled

Real return is roughly 2 percent minus 5 percent, or negative 3 percent.

1. Negative real return
2. Positive 7 percent real return
3. Zero inflation risk
4. Guaranteed purchasing-power growth

Higher policy rates can cool borrowing and demand.

1. Slow inflation pressure by tightening credit conditions
2. Guarantee stock gains
3. Eliminate all debt
4. Raise credit scores directly

Variable APR debt reacts to rate changes.

1. Rates rise and interest charges increase
2. Inflation falls to zero
3. Credit reports update
4. Banks change logos

Falling prices can increase the real burden of fixed debts.

1. Debt payments become heavier in real terms
2. Prices rising helps all debts vanish
3. Nominal balances disappear
4. Wages always rise

Expectations can influence behavior and policy.

1. Wage demands, pricing, and interest rates
2. Only bank passwords
3. Only card color
4. Only ATM limits

If pay rises less than prices, purchasing power declines.

1. Real income falls
2. Real income rises automatically
3. Debt is canceled
4. Taxes vanish

Long fixed payments can lose real value when prices rise.

1. Long-term fixed cash payments
2. A diversified inflation-linked basket always
3. Variable income with pricing power always
4. Short-term flexible rates only

Real return measures purchasing-power change.

1. Return after adjusting for inflation
2. Only nominal bank advertising
3. Credit card limit
4. Mortgage document length

Approximate real wage growth is wage growth minus inflation.

1. -3 percent
2. 13 percent
3. 8 percent
4. 5 percent

Inflation over several years compounds the price level.

1. Price increases build on prior higher prices
2. Prices rise only once
3. Interest disappears
4. Taxes are fixed forever

Real values account for inflation.

1. Adjust for purchasing power
2. Ignore inflation
3. Are always cash only
4. Cannot be spent

Essential variable costs can rise with inflation.

1. Groceries and utilities
2. Old password list
3. Favorite app icon
4. Printer color

Spreads compare borrowing or return rates.

1. Difference between two rates
2. A tax refund
3. A grocery discount
4. A card design

Purchasing-power return depends on inflation-adjusted yield.

1. Inflation is higher than the APY
2. The account has a password
3. The bank has branches
4. Statements are monthly