BUSINESS ADMINISTRATION
BUSINESS ENVIRONMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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total supply exceeds demand
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Prices rise rapidly
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The purchasing power of money rises
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Prices slowly decline
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Detailed explanation-1: -In an inflationary environment, unevenly rising prices inevitably reduce the purchasing power of some consumers, and this erosion of real income is the single biggest cost of inflation. Inflation can also distort purchasing power over time for recipients and payers of fixed interest rates.
Detailed explanation-2: -Cost-push inflation occurs when prices rise because production costs increase, such as raw materials and wages. The demand for goods is unchanged while the supply of goods declines due to the higher costs of production.
Detailed explanation-3: -Inflation rises when the Federal Reserve sets too low of an interest rate or when the growth of money supply increases too rapidly – as we are seeing now, says Stanford economist John Taylor.