Understanding Inflation

What is the primary reason inflation is considered a necessary part of a functioning economy?

• It prevents economic recessions.

• It encourages spending and investment.

• It helps maintain the value of currency.

• It ensures that goods remain affordable.

Which of the following is a primary cause of inflation?

• Decrease in production costs

• Decrease in consumer demand

• Increase in the supply of money

• Reduction in government spending

What is the demand-pull effect in the context of inflation?

• An increase in demand without a corresponding increase in supply

• A decrease in demand causing prices to drop

• An increase in supply leading to lower prices

• A decrease in money supply leading to higher prices

How can central banks influence inflation?

• By increasing taxes

• By adjusting interest rates

• By reducing government debt

• By printing more money

What is hyperinflation?

• A decrease in the inflation rate

• A slight increase in inflation rate

• A controlled increase in prices

• A rapid devaluation of currency