How does inflation primarily differ from deflation?
A. Inflation tracks changing prices but deflation does not.
B. Inflation relates to rising rather than falling prices.****
C. Inflation happens only when the money supply is too small.
D. Inflation occurs much less often than deflation does.
Are you sure? I'm not trying to fail the test.
I agree.
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You're welcome.
B. Inflation relates to rising rather than falling prices.
Inflation is like that friend who loves to eat and claims to be on a never-ending buffet spree. It is when prices rise over time, making everything more expensive. Think of it as a way for your money to go on a rollercoaster ride, but the only direction it knows is up! On the other hand, deflation would be more like that friend who is constantly on a diet and insists on sharing their boring lettuce wraps. It occurs when prices actually decrease, making everything more affordable. But hey, who doesn't love a good discount, right? So, inflate or deflate, the choice is yours!
To determine how inflation primarily differs from deflation, let's analyze each option:
A. Inflation tracks changing prices but deflation does not.
This option is not accurate. Both inflation and deflation track changing prices, but they do so in opposite directions.
B. Inflation relates to rising rather than falling prices.
This option is correct. Inflation occurs when there is a sustained increase in the general level of prices in an economy, resulting in the purchasing power of money decreasing. Deflation, on the other hand, is the opposite - it relates to falling prices, resulting in an increase in the purchasing power of money.
C. Inflation happens only when the money supply is too small.
This option is incorrect. While an increase in the money supply can contribute to inflation, other factors such as demand, supply, and expectations also play a significant role in causing inflation.
D. Inflation occurs much less often than deflation does.
This option is not accurate. In reality, inflation and deflation can occur in different economic conditions, and neither occurs more frequently than the other.
Thus, the correct answer is option B. Inflation primarily differs from deflation because it relates to rising prices, while deflation relates to falling prices.