Unit 2 · Level 1 · Inflation
Review: Inflation
CPI tracks an average basket, but your inflation depends on your own basket. Prices rise from too much demand, pricier inputs, or self-fulfilling expectations. Inflation shifts wealth from savers to debtors, and in the extreme (when states print to pay bills) money itself dies. Quiz time.
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What you get asked
Official inflation (CPI) tracks…
A weighted average basket. Your personal rate differs whenever your spending mix does, and it always does, a little.
Match the cause to its label.
Diagnosis matters: rate hikes cool demand-pull quickly, but they can't drill for gas. Cost-push needs time.
Unexpected inflation rewards ___ and punishes cash savers.
Fixed debts shrink in real terms. That transfer is inflation's hidden redistribution machine.
Zimbabwe's 100-trillion-dollar banknote exists because…
By 2008, printing had destroyed the currency's value so completely that only absurd denominations could buy groceries. Today the note IS a collector's souvenir.
Prices in a country doubled within one month. That's…
Doubling in a month is 100% monthly inflation, double the classic 50%-per-month threshold. Time to learn about the people whose job is preventing this: central banks. But first, interest rates. 🐜
The rest of this unit
Why prices rise, who wins, who pays, and what happens when money dies.