Question

Guy​ Ferrell, a student who lives in the country​ Paragon, observes that analysts are cutting their growth forecasts for the economy for the coming year. Most of them based their analysis on the fact that the level of inflation in the economy would adversely affect economic growth.​ However, Guy looks up the weekly inflation data for the past couple of months and finds that inflation has been stable and low. Which of the​ following, if​ true, would explain the​ analysts' predictions?

Answer 1

The correct answer to this open question is the following.

The statement, if​ true, that would explain the​ analysts' predictions would be "the Producer Price Index has been steadily increasing over the past few months."

That is what would have been the factor that supports the forecast. Although inflation has been constant at low levels, what changed was the Producer Price Index that is moving up. This factor could modify the results despite inflation is stable at this moment. When inflation is high, it directly affects the price of goods and the consumer.