Which statement best describes the relationship between a healthy economy and inflation?

A healthy economy typically requires some inflation, as moderate inflation is seen as a sign of economic growth and demand. When prices rise gradually over time, it indicates that consumers are spending more, businesses are investing, and overall economic activity is increasing. This moderate level of inflation can encourage consumption and investment, as people are more likely to spend their money now rather than waiting for prices to increase further in the future.

Central banks often target a specific inflation rate, usually around 2%, recognizing that too little inflation or deflation could signal an economic slowdown, while too much inflation could erode purchasing power. Therefore, in a well-functioning economy, a small degree of inflation is not only accepted but expected, as it contributes to overall economic stability and growth.