Question

Which of the following would lead to an increase in the inflation rate

Answer 1

Answer:

rapidly rising production costs

Explanation:

Answer 2

Answer:

Actually, an increase in inflation is likely to mean a rise in the cost of raw materials. Perhaps,  workers are likely to demand higher wages to cover or cope with the higher cost of daily living. This rise in prices can also cause greater volatility and uncertainty. With firms uncertain about future costs, they may hold back from making investment decisions. Firms generally prefer a low and stable inflation rate.  Also, with a inflation rate, firms may expect rising interest rates, which will increase cost of borrowing – another reason to hold back on investment.  With higher inflation, firms may face menu costs (the cost of changing and updating prices). However, with modern technology this cost has diminished in importance – as it is easier for firms to update prices automatically.

Explanation: