Question

Although there are a number of ways that an economy can begin an inflationary spiral, most of them begin with a _________ in Spending GDP that results from the creation of too much money.

A) rise
B) decline
C) stabilization
D) none of the above

Answer 1

The correct answer is option A.

Step-by-step explanation:

Inflation refers to the sustained increase in the general price level. Several factors can lead to a rise in the inflation level or create an inflationary spiral.

An increase in the demand for goods and services creates inflationary pressure in the economy. When there is too much increase in the money supply, the nominal income increases.

This leads to increased demand but due to scarcity of resources production can not be increased. When the demand increases beyond the full employment level, the price level increases. At this point, excess demand exists in the economy.

In short, we can say that a rise in spending due to increased money supply causes an inflationary spiral.