ECONOMICS
GDP
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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all prices are rising, but at different rates.
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all prices are rising and at the same rate.
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prices in the aggregate are rising, although some particular prices may be falling.
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real incomes are rising.
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Detailed explanation-1: -Inflation is an increase in the level of prices of the goods and services that households buy. It is measured as the rate of change of those prices. Typically, prices rise over time, but prices can also fall (a situation called deflation).
Detailed explanation-2: -When the aggregate supply of goods and services decreases because of an increase in production costs, it results in cost-push inflation. In order to compensate, the increase in costs is passed on to consumers, causing a rise in the general price level: inflation.
Detailed explanation-3: -Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country. But it can also be more narrowly calculated-for certain goods, such as food, or for services, such as a haircut, for example.
Detailed explanation-4: -A fall in aggregate supply is often caused by an increase in the cost of production. If aggregate supply falls but aggregate demand remains unchanged, there is upward pressure on prices and inflation – that is, inflation is ‘pushed’ higher.
Detailed explanation-5: -But: higher inflation reduces competitiveness of exports. Result: Higher inflation leads to less aggregate demand.