HISET Social Studies Practice

What is the goal of inflation management in an economy?

1. To eliminate all currency

2. To maintain stable prices

3. To increase consumer debt

4. To encourage saving over spending

The correct answer is: To maintain stable prices

The goal of inflation management in an economy is primarily to maintain stable prices. Stable prices are essential for economic stability because they help consumers and businesses make informed decisions about spending, saving, and investing. When prices are stable, it reduces uncertainty, which can lead to increased consumer confidence and economic growth. Inflation management involves using monetary policy tools to control the rate of inflation, ensuring it does not rise too high or fall too low. This balance helps to sustain purchasing power and encourages a stable economic environment where businesses can plan for the future without the disruption caused by volatile price changes. The other options do not align with the primary objectives of inflation management. Eliminating all currency is impractical and would disrupt the economy entirely. Increasing consumer debt can lead to financial instability and is not a goal of inflation management. Encouraging saving over spending, while beneficial in certain contexts, does not directly relate to the fundamental aim of maintaining price stability.