Final Answer:
Item 5 inflation is caused by expansion of the money supply. (option D)
Step-by-step explanation:
Inflation is caused by the expansion of the money supply, as indicated by option D. When the money supply increases rapidly, there is more money circulating in the economy, leading to an excess of demand relative to the available goods and services. This imbalance drives up prices, resulting in inflation.
The logic behind this lies in the basic economic principle of supply and demand. As the money supply expands, consumers have more money to spend. If the supply of goods and services does not increase at a corresponding rate, the increased demand puts upward pressure on prices. This phenomenon is particularly evident when there is an excessive creation of money, either through government policies or other factors that lead to a rapid expansion of the money supply.
Therefore, in the context of inflation, the key factor is the expansion of the money supply. This understanding is crucial for policymakers, economists, and individuals alike in managing and responding to inflationary pressures in an economy. The correct identification of the cause helps formulate effective strategies to control inflation and maintain a stable economic environment.(option D)