Question

What are the signs of high inflation? Check all that apply.

Production begins to fall.
Production begins to rise.
Interest rates decrease.
Interest rates increase.
Purchasing power falls.
Fewer fixed rate bank loans.

Answer 1

Correct answers:
- Production begins to rise.
- Interest rates increase.
- Purchasing power falls.
- Fewer fixed‑rate bank loans.

Brief reasons:
- Inflation often accompanies rising demand and output in the short run (production can increase).
- Central banks raise nominal interest rates to fight high inflation.
- Inflation reduces the real purchasing power of money.
- Lenders avoid long fixed‑rate loans in high/increasing inflation, so fixed‑rate lending falls.

Incorrect:
- Production begins to fall — not a typical primary sign of high inflation (may occur later if inflation is very high or unstable).
- Interest rates decrease — this is not a sign of high inflation.