Question

David sits next to you in your History class. He reads the definition of inflation, but he asks you to help him understand it a little better. Which of these options will help you explain this concept to your friend?

• A. If people have more money to spend, they will buy more things.
• B. Suppliers will cut jobs because of lower demand.
• C. The suppliers will produce more goods.
• D. The increase in production costs will increase the cost of the products.

Answer 1

Answer: (A), (C), (D)

The correct options are
A If people have more money to spend, they will buy more things.
C The suppliers will produce more goods.
D The increase in production costs will increase the cost of the products.

When people have more to spend, they will buy more things. It will increase demand. The increase in demand means the suppliers will have to increase production, which leads to increased employment. The rise in production increases the cost of the products. This process is called Inflation.