Question

The inflationary spiral explains the causes and effects of high inflation.

The spiral usually begins with an increase in demand. What is the direct effect of this increase?

Producers raise prices to continue to make a profit.
The government prints more money, lowering the value of money.
Workers negotiate with employers to receive more money.
Consumers need higher wages to keep up with rising prices.

Answer 1

Producers raise prices to continue to make a profit.

(An initial demand surge lets firms lift prices; later responses—wage demands, money printing—can follow and feed the spiral.)