Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
If nominal income rises but inflation rises faster, purchasing power decreases.
B
Inflation has no effect on purchasing power if nominal income is stable.
C
A higher price index indicates that the cost of living has increased relative to previous years.
D
Individuals can maintain their purchasing power by simply saving more money during inflationary periods.
E
If the price index increases while nominal income does not, the standard of living decreases.
Understanding the Answer
Let's break down why this is correct
Answer
Inflation refers to the general increase in prices of goods and services over time. When inflation rises, the purchasing power of money decreases, meaning people can buy less with the same amount of money. This can lead to a lower standard of living, especially if wages do not increase at the same rate as inflation. For example, if the price of groceries goes up but your paycheck stays the same, you will have less money to spend on other things, making it harder to maintain your usual lifestyle. Therefore, inflation can negatively affect how well people can meet their daily needs and enjoy their lives.
Detailed Explanation
All the statements misunderstand how inflation affects people's ability to buy things. Other options are incorrect because This option suggests that income increases help, but if prices rise faster, people still lose buying power; This statement wrongly claims that stable income means no change in buying power.
Key Concepts
Inflation
Standard of Living
Purchasing Power
Topic
Inflation and Standard of Living
Difficulty
easy level question
Cognitive Level
understand
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