ECONOMICS (CBSE/UGC NET)

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ECONOMICS

INFLATION

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Kara’s retirement income is fixed at $24, 000 per year. She feels financially secure knowing exactly how much her income will be each month and that her purchasing power will remain fixed. She is not planning to change her spending patterns. The current inflation rate is 3 percent. With inflation, is Kara 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: -You can use history to help you estimate how much extra you’ll need to have available to cover inflation. If your retirement is 20 years away, and you use the 2001 to 2021 example as your guide, your $143.52 basket of groceries could cost you $205.97.

Detailed explanation-2: -Although inflation has increased at an unusually brisk pace in recent years, financial advisors generally suggest assuming an annual 3% inflation rate when planning for retirement.

Detailed explanation-3: -So, if you are planning to retire in the next 10-20 years, it would be prudent to factor in a higher rate of inflation. “Terminal inflation rate can be even 4% 30 years down the line. However, it would be safer to assume 5-6% inflation rate if one is planning to retire in 10-20 years, ” adds Rego.

Detailed explanation-4: -Inflation is the rate of increase in prices over a given period of time. Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country.

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