A reduction in the rate of inflation is called:

Stagflation is defined as a period when real GDP ________ and the price level ________

A) is constant; rises rapidly B) decreases; increases C) increases; increases D) decreases; decreases E) increases; decreases

Which of the following can help to explain why higher inflation may lead to currency appreciations?

A) The interest rate is not the prime target of monetary policy. B) Most central banks adjust their policy interest rates expressly so as to keep inflation in check. C) Central banks increase the money supply leading to overshooting of the exchange rate. D) Inflation will increase the purchasing power of a currency. E) The world market does not adjust their currency trade to reflect inflation.