ECONOMICS (CBSE/UGC NET)

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ECONOMICS

INFLATION

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Doug has saved money for four years to pay for a new car. He has carefully tucked away part of his earnings each week in a cookie jar. During this four-year period, inflation has caused the price of new cars to increase about 3 percent each year. With inflation, is Doug financially better off, worse off, or the same?
A
Better off
B
Worse off
C
The same
D
None of the above
Explanation: 

Detailed explanation-1: -QUESTION: Why does the Fed attempt to make banks both safe and sound? SUGGESTED ANSWER: Stable and healthy banks enhance public confidence in the financial system.

Detailed explanation-2: -Substitution bias occurs because the CPI ignores the possibility of consumer substitution toward goods that have become relatively less expensive. Substitution bias causes the CPI to understate the increase in the cost of living from one year to the next.

Detailed explanation-3: -The Consumer Price Index (CPI), produced by the Bureau of Labor Statistics (BLS), is the most widely used measure of inflation.

Detailed explanation-4: -The total value of a nation’s output is equal to the total value of a nation’s income. The government spending component of GDP only accounts for federal spending. The goals of macroeconomic policy include low rates of inflation, lower unemployment, and perfect competition in markets.

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