Michigan Test for Teacher Certification (MTTC) Social Studies Practice Exam

Question: 1 / 400

Which of the following statements about inflation is true?

Inflation benefits consumers by increasing their purchasing power

High inflation can lead to increased business costs

High inflation can lead to increased business costs as businesses face rising prices for raw materials, wages, and other operational expenses. When inflation occurs, it suggests that the overall price level of goods and services is increasing, meaning that businesses may have to pay more for the inputs they need to produce their products. As costs rise, businesses might either absorb these costs, which can reduce their profit margins, or pass them on to consumers through higher prices. This scenario can create a cycle of inflation as prices continue to escalate.

This impact on business costs underscores the interconnectedness of inflation with economic factors, and it emphasizes why managing inflation is crucial for maintaining economic stability and growth. The other choices either incorrectly attribute benefits to inflation or misunderstand its effects on financial mechanisms like interest rates and money supply.

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Inflation decreases interest rates significantly

Inflation has no impact on money supply

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