Quiz #631 answers

• 1. Which of these situations represents an inflationary episode in the macroeconomic sense?
  1. (a) On July 1, 2000, the Australian government introduced a Goods and Services Tax of 10 per cent on most goods and services (with some exemptions). In the September-quarter 2000, the Consumer Price Index rose by 6.1 per cent.
  2. (b) The press reported that Australias property prices rose at their fastest rate since 2003 in February 2021.
  3. (c) The Consumer Price Index rose by 9 per cent in month one, six per cent in month two and 3 per cent in month three.
  4. (d) The Consumer Price Index rose by 3 per cent in month one, 6 per cent in month two and 9 per cent in month three.

Answer: (c) and (d)

• 2. In 2008, the consumer price level in Zimbabwe rose by 157 per cent. Between 1998 and 2008, real GDP fell by 50.7 per cent. The hyperinflation arose mainly because:

Answer: (d) The supply side of the economy contracted so much that previously normal (non-inflationary) levels of spending growth were now vastly excessive

• 3. An employment buffer stock scheme involves the government offering an infinite demand for labour. This means that:

Answer: (b) the scheme will expand and contract on demand from workers for jobs.

• 4. A major criticism of mainstream economists of the use of fiscal deficits is that they crowd out productive private spending. That criticism errs because:

Answer: (b) Banks create deposits when they make loans to credit-worthy customers.

• 5. Commercial banks are required to hold reserve accounts with the central bank for which reason:

Answer: (c) To ensure that all daily transactions in the economy that involve claims between banks can be resolved without any cheques bouncing.