When air is heated, the molecules of hot air move faster than particles of cold air and move further apart from each other. Hence, we say that air expands on heating.
Activity:
Observation: We observe the balloon is inflated.
Inference: The air in the bottle was heated by boiling water. This heat caused the air to expand inside the bottle and further move and enter into the balloon, thereby causing it to inflate.
Conclusion: Air expands on heating.