Question

QUESTION 1 Low rates of inflation are generally associated with a. low rates of productivity growth. b. small or nonexistent government budget deficits. c. low rates of growth of the quantity of money. d. low rates of government spending.

Answer 1

Option C: Low rates of growth of the quantity of Money

Step-by-step explanation:

Growth of money and inflation rate are directly associated with each other. If the money supply increases in the economy, it may increase the demand for various products and thus increases their prices. Low inflation or the prices of commodities will not rise if;

• Supply of money in the economy is reduced
• The goods are supplied in more quantity than the inflation rate, e.g. if the inflation rate is 10 % and goods supplied increases by 15 %, then the prices of goods may fall keeping remaining factors constant.