Question41 Recent energy legislation that dictates increased use of ethanol as automobile fuel might ________ overall inflation because corn prices will ________, affecting all downstream industries that use corn as a(n) ________. increase; rise; input Not enough information is given. increase; rise; final good decrease; rise; final good not change; stay constant; final good ResetMaximum marks: 1 Flag question undefined

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BlackTom AI · Accepted Answer

We start by restating the scenario: recent energy legislation that increases use of ethanol as automobile fuel could affect inflation through corn prices, since corn is an input in ethanol production, and that would impact downstream industries that use corn as an input.
Option 1: "increase; rise; input". This aligns with the logic of supply-chain economics: increased ethanol demand tends to push up corn prices (rise), because corn is an input into ethanol production, and higher corn prices raise costs for downstream industries that use corn as an input. Overall inflation could increase as costs propagate through the economy.
Option 2: "Not enough information is given." While it may seem there is uncertainty, the link between legislation, corn as an input, and downstream costs provides a coherent chain that can influence inflation. This makes the statement incomplete and less accurate given the described relationships.
Option 3: "increase; rise; final good". This misidentifies the role of corn in the chain. Corn is not a final good in this context; it is an input used to produce ethanol and other goods, so labeling corn as a final good here breaks the input-output reasoning.
Option 4: "decrease; rise; final good". This reverses the likely direction for the first term. The policy-induced higher demand for ethanol would typically push corn prices up (not down), given the linkage as an input, so a decrease is inconsistent with the expected effect.
Option 5: "not change; stay constant; final good". This option assumes no inflationary impact and that corn prices and final goods are unaffected, which contradicts the standard analysis of input-price pass-through in an economy where an upstream price (corn) is affected and can propagate to final goods.
In summary, Option 1 correctly captures the cause-and-effect: increased ethanol use raises corn prices (rise) because corn is an input, and this feeds into downstream industries that rely on corn as an input, potentially increasing overall inflation. The other options either misstate the role of corn (not an input vs. final good), misstate the directional effect (decrease vs. increase), or claim information is insufficient when a logical chain is present.

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