SAT Subject US History Practice Question 689: Answer and Explanation

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Question: 689

40. The high gasoline prices that occurred during the administration of Jimmy Carter caused

A. deflation because the value of the dollar was falling.
B. inflation because prices were rising and the value of the dollar was falling.
C. depression because the bottom fell out of the stock market.
D. stagnation because employment was so high.
E. a rise in the value of the dollar because the prices were so high.

Correct Answer: B

Explanation:

A definition of inflation is "rising prices." First, prices go up; then that causes the value of the dollar to go down, because it takes more money to buy the same goods. Deflation means a fall in prices and an increase in the value of the dollar (A). There wasn't a depression in the late 1970s (C). Stagnation (of the economy) does not occur when employment is high (D). The value of the dollar decreases when prices are high-the opposite of what (E) suggests.

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