Which of the Following Is Not an Example of Inflation

question 7

Multiple Choice

Which of the following is not an example of inflation causing a redistribution of income because the inflation was unanticipated?

• A)A firm signs a 3-year contract with a union based on a 2 percent anticipated rate of inflation per year,and the actual rate of inflation ends up being 7 percent per year.
• B)A worker receives a raise in salary that is less than the rate of inflation,because management under-predicted inflation.
• C)Firms have to hire an extra worker to change prices in its store because of inflation.
• D)A bank collects a lower amount of interest from a loan because inflation was under-predicted.

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Definitions:

Marginal Utility

The extra contentment or usefulness experienced by consuming one more unit of a good or service.

Utility Maximization

The process by which individuals allocate their resources to maximize their satisfaction or utility.

Marginal Utility

The added gratification or usefulness experienced by a buyer when they consume an additional unit of a good or service.

Utility Maximization

The economic principle that individuals or firms strive to get the greatest satisfaction or benefit from their available resources.