HISET Social Studies Practice

What typically happens during an inflationary spiral?

1. Prices decrease steadily over time

2. Wages remain stagnant

3. Average price levels rise rapidly

4. Consumer demand decreases significantly

The correct answer is: Average price levels rise rapidly

During an inflationary spiral, average price levels rise rapidly. This phenomenon occurs when inflation leads to higher costs of goods and services, which then prompts businesses to raise their prices further. As consumers face increasing prices, the purchasing power of money declines, causing them to spend more to acquire the same goods and services. This increase in demand can further fuel inflation, creating a cycle where rising prices prompt higher wages and costs, which in turn lead to even higher prices. The context for the incorrect options clarifies why they do not capture the essence of an inflationary spiral. Steady price decreases or stagnant wages do not align with the ongoing and escalating nature of price increases characteristic of an inflationary spiral. Additionally, while consumer demand may fluctuate with price changes, it typically does not significantly decrease during such an event; often, demand can remain stable or even grow, propelled by the need to maintain living standards despite rising costs.