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Inflation and Standard of Living
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How does inflation affect the purchasing power of consumers?

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Learning Path

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Choose the Best Answer

A

It increases purchasing power

B

It decreases purchasing power

C

It has no effect on purchasing power

D

It only affects wealthy consumers

Understanding the Answer

Let's break down why this is correct

Answer

Inflation is when prices for goods and services rise over time, which means that the same amount of money buys you less than before. For example, if a loaf of bread costs $2 today but rises to $2. 50 next year due to inflation, you need more money to buy the same loaf. This decrease in what your money can buy is known as a decrease in purchasing power. As prices go up, consumers may have to cut back on their spending or choose cheaper alternatives, which can lower their overall standard of living.

Detailed Explanation

Inflation means prices go up. Other options are incorrect because Some might think inflation helps because they see higher wages; It's a common belief that inflation doesn't change anything.

Key Concepts

Purchasing Power
Topic

Inflation and Standard of Living

Difficulty

easy level question

Cognitive Level

understand

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