¡¡¡¡Model Test 11

¡¡¡¡Inflation is an economic condition in  1  prices for consumer goods increase, and the value of money or purchasing power decreased. There a re three important causes of inflation. The first and most important cause may be  2  government spending. For example, insgroupsto  3  a war or carry  4  social programs, the government may spend more money than it has received through taxes and other  5  , thus creating a deficit. Insgroupsto  6  this deficit, the Treasury Department can simply  7  t he money supply by issuing more paper money to return the debts of government. T his increase in the money supply will cause the value of the dollar to  8  decrease. The second cause of inflation will occur when the money supply  9   faster than the supply of goods.  10  people have more money, they will run out to buy popular goods like televisions and computers, for example, and a  11  will b e the result. Industry will then produce more, at higher prices, to  12  the demand.  13  , if people think that the pr ices of popular goods are  14  , they will buy and  even borr ow money at high  15  rates to pay for them. Finally, if labor unions demand that workers¬ðwages  16  to suit the high cost of living, industry will meet this demand and add other  17  of production on the  18  . In summary, all of the se causes can  19  inflationary problems that can affect the welfare of a nation. However,  20  these three causes, excessive government spending may be the most important.

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¡¡¡¡16.¡²A¡³should increase¡²B¡³be increased¡²C¡³increase¡²D¡³increased

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