Which of the Following Would Be Expected to Cause a an Increase

question 57

Multiple Choice

Which of the following would be expected to cause a an increase in the inflation rate rather than a once-and-for-all increase in the price level?

• A)the imposition of a new sales tax
• B)the sudden doubling of a key raw materials price
• C)a new payroll tax that raises unit wage costs
• D)expectations of higher future inflation
• E)an early frost that damages the agricultural harvest

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Definitions:

Price Level

An index reflecting the overall current prices for a wide range of goods and services within the economy, averaged out.

Exchange-Rate Effect

Refers to the impact of changes in the exchange rate on a country's export and import prices, and subsequently on its trade balance.

Aggregate-Demand Curve

A graphical representation showing the relationship between the total quantity of goods and services demanded (aggregate demand) and the overall price level, all else being equal.

Foreign Exchange Markets

Markets where currencies are traded, enabling businesses and individuals to convert one currency into another for various purposes including trade, investment, and tourism.