n defending a mild inflation rate in the economy, the proponents argue that a mild inflation is a by-product of strong spending, and as a result: Multiple Choice high spending generates high profit, less need for labour and, a great incentive for firms to cut back production. high spending increases the general price level, increase in the cost of labour and this would result in cost push inflation. high spending generates high profit, strong demand for labour and, a great incentive for firms to expand their production capacity. even a low inflation rate reduces the real output, employment and the profits of the firms