According to some economists, which of the following is considered a positive effect of mild inflation?

• A. It leads to a decrease in employment opportunities.
• B. It causes a reduction in the purchasing power of wages.
• C. It results in higher real interest rates.
• D. It encourages consumers to spend rather than hoard money.

Answer: (D)

Verified step by step guidance

1. Understand the concept of mild inflation: Mild inflation refers to a moderate and steady increase in the general price level of goods and services over time.
2. Recall the effects of mild inflation on consumer behavior: Mild inflation can influence how consumers decide to spend or save their money.
3. Analyze the options given: Decrease in employment opportunities and reduction in purchasing power of wages are generally negative effects, while higher real interest rates are not typically caused by mild inflation alone.
4. Focus on the positive effect: Mild inflation encourages consumers to spend money sooner rather than hoard it, because holding onto cash leads to a loss in purchasing power over time.
5. Conclude that the positive effect of mild inflation is that it encourages consumer spending, which can stimulate economic activity.