ECONOMICS (CBSE/UGC NET)

Previous
Next

ECONOMICS

INFLATION

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
John has worked at the same job for five years. During that time, he received a 1 percent pay increase one year, a 3 percent increase in another year, and no other increases in his wages. Over the same time, the inflation rate has averaged 3 percent per year. With inflation, is John 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: -Inflation measures how much more expensive a set of goods and services has become over a certain period, usually a year.

Detailed explanation-2: -Money loses value when its purchasing power falls. Since inflation is a rise in the level of prices, the amount of goods and services a given amount of money can buy falls with inflation. Just as inflation reduces the value of money, it reduces the value of future claims on money.

Detailed explanation-3: -During inflation, the demand for money increases significantly due to the increased money supply in the economy. People will want to hold more money to fulfill their needs. However, people will want to go to the bank less frequently because of the shoe-leather costs of inflation.

Detailed explanation-4: -Which of the following is an example of inflation? The price level of many things you buy increases over time.

There is 1 question to complete.
Previous
Next