QQuestionEconomics
QuestionEconomics
Typically, low inflation is a sign of:
A. A healthy economy because it results from a steady rise in demand.
B. A healthy economy because it results from a steady rise in supply.
C. A struggling economy because it results from a steady fall in demand.
D. A struggling economy because it results from a steady fall in supply.
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Answer
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Step 1: Analyze the relationship between inflation and the economy.
Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. Central banks attempt to limit inflation, and avoid deflation, in order to keep the economy running smoothly. Low inflation can be a sign of a healthy economy or a struggling economy, depending on the context and cause.
Step 2: Evaluate the causes of low inflation in this context.
The question states that low inflation results from a "steady rise" in either demand or supply. A steady rise in demand generally indicates a healthy economy, as it shows that consumers are confident and willing to spend money. Conversely, a steady rise in supply could also lead to lower inflation if producers are able to meet the increased demand without raising prices.
Final Answer
The correct answer is A, "A healthy economy because it results from a steady rise in demand."
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