ECONOMICS
BUSINESS CYCLES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The Consumer Price Index (CPI) shows the change in price of all consumer products in a country
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Inflation decreases the purchasing power of a country’s currency
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Inflation causes unemployment
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When inflation increases, nominal interest rates decrease
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Unanticipated inflation benefits lenders
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Detailed explanation-1: -Inflation is the general rise in the prices of goods and services in an economy, over a period of time. It reduces the purchasing power of consumers, because each unit of currency can purchase fewer products with an increase in the general price levels.
Detailed explanation-2: -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-3: -The true statement is option d) It refers to an increase in the average level of prices. The inflation over a given period signifies the general increase in the average price level of goods and services.
Detailed explanation-4: -The correct answer is (d) It describes both increases in prices and decreases in prices. Inflation only refers to the increase in the price level of commodities in the market not the decrease of their prices. The decrease in the price level of commodities is represented by deflation not inflation.
Detailed explanation-5: -The rate of inflation increases when the purchasing power of money decreases.