Texas Real Estate Brokerage Sales Apprentice Education (SAE) Practice Exam

What could be an indicator of future inflation aside from a rise in prices?

1. An increase in foreign investment

2. A decline in consumer confidence

3. Strong economic growth

4. A rise in interest rates

The correct answer is: Strong economic growth

Strong economic growth can serve as an indicator of future inflation because it often correlates with increased consumer spending and investment, which can drive up demand for goods and services. When demand outpaces supply, it typically leads to higher prices. In a robust economy, businesses may also expand operations, hire more employees, and increase wages, all of which contribute to an increase in aggregate demand. This dynamic can put pressure on prices to rise as the economy operates near or at full capacity. Moreover, sustained economic growth can prompt expectations of inflation among consumers and investors, which can lead them to adjust their behavior in anticipation of price increases. Therefore, while a rise in prices is a direct indicator of inflation, the underlying economic conditions that foster strong growth often signal inflationary pressures on the horizon. The other options do indicate different economic conditions but do not have the same direct connection to inflation. For instance, an increase in foreign investment might reflect global confidence in a country's economy but does not necessarily predict inflation. Similarly, a decline in consumer confidence can indicate economic trouble, which is typically associated with lower inflationary pressures. Lastly, while rising interest rates can be a response to rising inflation, they can also indicate an effort by the Federal Reserve to cool off an overheating economy