2003, Volume 06, Issue 3
Deflation Quiz
U.S. businesses as well as individual citizens have been caught up in the country's recent economic uncertainty. Refer to Donald M. Atwater's article, "Facing Up to the Possibility of Deflation." Then complete the GBR Quiz to test your grasp of the issues associated with potential deflation.
Taking the quiz is completely anonymous. GBR does not record or tabulate results in any form. You are the only one who will know how well you do. However, you will only be able to view results for those questions that you actually answer.
| 1. The most commonly used indicator of pricing movement or volatility is the: | |
| A) | FRB = Federal Reserve Bank |
| B) | COL-I = Cost of Living Index |
| C) | BLS = Bureau of Labor Statistics |
| D) | CPI = Consumer Price Index |
| 2. Over the last 20 years, two prolonged deflationary spirals have occurred, one in the 1980's and the other now. | |
| A) | True |
| B) | False |
| 3. Long-existing products and services tend to contribute more to deflation than do new products and services. | |
| A) | True |
| B) | False |
| 4. Dollars borrowed during a period of deflation are: | |
| A) | less valuable than dollars repaid in the future. |
| B) | the same value as dollars repaid in the future. |
| C) | more valuable than dollars repaid in the future. |
| D) | of varying value, depending on how much is borrowed. |
| 5. A 10% rise in the country's monetary base during deflation does NOT signal which of the following: | |
| A) | that savers hesitate to deposit money at low interest rates. |
| B) | that the deflationary spiral is ending. |
| C) | that people are not making rational economic decisions. |
| D) | that businesses are reluctant to borrow. |
| 6. During a period of deflation, if the ratio of price movements in your market relative to the general economy is greater than one, prices in your market are likely to fall faster than average prices. | |
| A) | True |
| B) | False |
| 7. During a period of deflation, if your financial partners are invested in equity home mortgages and if equity drops by 7 or more percent over a period of months, plan on revising sales targets upward in the next quarter. | |
| A) | True |
| B) | False |
| 8. If prices of U. S. products and services continue to fall relative to prices in other international markets, which choice would NOT be true? | |
| A) | Countries with less relative inflation can expect stronger future exchange rates. |
| B) | International sales targets should be adjusted. |
| C) | Continue to write international sales contracts in U.S. dollars rather than in foreign currencies. |
| 9. In a period of increasing prices, a substantial fall in inflation predominantly occurs when: | |
| A) | a change occurs in the political party in control of the country. |
| B) | a shock or decline occurs in a major market. |
| C) | an announcement is made by Alan Greenspan. |
| D) | consolidation of too many major corporations occurs. |
| 10. Signs of a deflationary spiral include all but the following: | |
| A) | confusion in the money market |
| B) | decreasing housing activity levels |
| C) | food and gasoline price increases |
| D) | lack of capital for capital improvements |
| E) | decreasing deposits in financial institutions |
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