Lesson M2.4.2

M2.4.2 Causes and consequences of inflation and deflation Quiz: OCR Economics, Unit 7

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

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Lesson M2.4.2, Causes and consequences of inflation and deflation: 20 multiple choice questions for the OCR Economics (H460), Unit 7: Economic policy objectives, written with Revision Ninja.

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The 20 questions

  1. Which type of inflation is caused by excess aggregate demand in an economy?

    • Cost-push inflation
    • Structural inflation
    • Imported inflation
    • Demand-pull inflation

  2. What is the primary cause of cost-push inflation in a macroeconomy?

    • Higher production costs
    • Higher consumer demand
    • Lower interest rates
    • Increased money supply

  3. What term describes a sustained fall in the average price level of an economy?

    • Hyperinflation
    • Disinflation
    • Stagflation
    • Deflation

  4. What term describes a falling rate of inflation where prices still rise slowly?

    • Hyperinflation
    • Disinflation
    • Deflation
    • Reflation

  5. Which index includes housing costs like mortgage interest payments in the UK?

    • GDP Deflator
    • Consumer Prices Index
    • Producer Price Index
    • Retail Prices Index

  6. What cost of inflation refers to the time and effort spent searching for better prices?

    • Shoe-leather costs
    • Capital costs
    • Menu costs
    • Admin costs

  7. What cost of inflation arises from firms needing to update price lists frequently?

    • Transaction costs
    • Fiscal drag
    • Shoe-leather costs
    • Menu costs

  8. If nominal GDP grows by 5% and inflation is 2%, what is real GDP growth?

    • 7%
    • 3%
    • 2.5%
    • 10%

  9. Which effect occurs when inflation pushes taxpayers into higher income tax brackets?

    • Bracket slip
    • Tax erosion
    • Fiscal drag
    • Wage spiral

  10. What happens to the real value of fixed debt during a period of inflation?

    • It doubles
    • It increases
    • It decreases
    • It stays unchanged

  11. If the CPI rises from 100 to 105 in one year, what is the inflation rate?

    • 105%
    • 0.5%
    • 50%
    • 5%

  12. Which equation of exchange links money supply directly to the price level?

    • AD = C+I+G+X-M
    • MV = PQ
    • S = I
    • Y = C+S+T

  13. What type of deflation is driven by improvements in technology and productivity?

    • Supply-side deflation
    • Demand-side deflation
    • Malign deflation
    • Cost-push deflation

  14. What type of deflation results from a sharp collapse in aggregate demand?

    • Supply-side deflation
    • Demand-side deflation
    • Cost-push deflation
    • Benign deflation

  15. Why might consumers delay purchases during a period of sustained deflation?

    • High interest rates
    • Rising real wages
    • Shortage of supply
    • Expecting lower prices

  16. How does high domestic inflation affect a country's export competitiveness?

    • Has no effect
    • Eliminates trade deficits
    • Reduces competitiveness
    • Increases competitiveness

  17. What phrase describes workers demanding higher nominal wages to offset rising inflation?

    • Wage-price spiral
    • Multiplier effect
    • Fiscal drag
    • Real wage resistance

  18. If the CPI is 120 in Year 1 and 126 in Year 2, what is the inflation rate?

    • 20%
    • 126%
    • 5%
    • 6%

  19. Which economic group generally benefits from unexpected high inflation?

    • Debtors
    • Lenders
    • Savers
    • Pensioners

  20. What is the main official inflation target set for the Bank of England?

    • 2% CPI
    • 2% RPI
    • 3% RPI
    • 1% CPI

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