Economists expect a healthy economy to have a high gross domestic product and
A high inflation.
B low inflation.
C zero inflation.
The correct answer and explanation is:
The correct answer is B) low inflation.
Economists typically view low inflation as a sign of a healthy economy. Gross Domestic Product (GDP) measures the total value of goods and services produced within a country over a specific period, and when it is growing at a healthy rate, it indicates that businesses are producing more, people are working, and overall economic activity is robust.
However, inflation is a critical factor that needs to be considered alongside GDP growth. Inflation refers to the rate at which prices for goods and services increase over time, which can erode purchasing power. In an economy experiencing low inflation, prices rise at a stable and predictable rate. This is beneficial because it provides businesses and consumers with more certainty about future prices, which encourages investment and spending. Low inflation also helps maintain the real value of wages, which supports purchasing power and standards of living.
On the other hand, high inflation can be damaging to the economy. When inflation is high, the cost of living increases quickly, making it harder for consumers to afford everyday goods and services. This can reduce the overall purchasing power of consumers, leading to decreased demand and potentially slower economic growth. Additionally, businesses may face uncertainty regarding future costs, making it more challenging to make long-term investment decisions. High inflation can also lead to a situation called hyperinflation, where prices rise uncontrollably, often causing severe economic and social instability.
Zero inflation, while appearing ideal in some cases, is often considered less desirable than low inflation. A certain level of inflation is typically necessary to encourage economic growth, as it can signal that demand for goods and services is increasing, which drives investment and production.
In conclusion, economists generally expect a healthy economy to have a high GDP and low inflation, as this combination fosters both economic growth and price stability.