Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It increases purchasing power
B
It decreases purchasing power
C
It has no effect on purchasing power
D
It increases purchasing power for fixed income earners
Understanding the Answer
Let's break down why this is correct
Answer
Unanticipated inflation means that prices of goods and services rise more than people expect. When this happens, the money people have doesn’t buy as much as it used to. For example, if you have $10 and a candy bar costs $1 today, you can buy 10 candy bars. But if unanticipated inflation causes the price to rise to $1. 20, you can only buy 8 candy bars with that same $10.
Detailed Explanation
Unanticipated inflation means prices go up faster than people expect. Other options are incorrect because Some might think that inflation helps people buy more; It’s a common belief that inflation has no effect on what you can buy.
Key Concepts
Purchasing power
Topic
Unanticipated Inflation Effects
Difficulty
easy level question
Cognitive Level
understand
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