Typically, low inflation is a sign of which of the following economic conditions?

• A. High levels of unemployment
• B. Stable economic growth
• C. Rapid increase in aggregate demand
• D. Expansionary monetary policy

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the relationship between inflation and economic conditions. Inflation measures the general increase in prices over time, and its rate can indicate different states of the economy.
2. Step 2: Recognize that low inflation typically suggests that prices are rising slowly, which often corresponds to a stable economic environment without excessive demand pressures.
3. Step 3: Analyze the options: High unemployment usually correlates with low inflation or deflation due to weak demand; rapid increase in aggregate demand tends to cause higher inflation; expansionary monetary policy often aims to increase inflation and stimulate growth.
4. Step 4: Connect low inflation with stable economic growth, as stable growth means the economy is expanding at a sustainable rate without overheating or causing high inflation.
5. Step 5: Conclude that low inflation is most consistent with stable economic growth, where price levels rise moderately and the economy avoids extremes like recession or boom.