Simon borrowed R10 000 from the bank at the end of 2011 at a fixed interest rate of 20%. At the end of 2012, the inflation rate was 25%. Inflation has been ..... to Simon; the real value of his loan plus interest payments changed to .....

INFLATION

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

Simon borrowed R10 000 from the bank at the end of 2011 at a fixed interest rate of 20%. At the end of 2012, the inflation rate was 25%. Inflation has been ____ to Simon; the real value of his loan plus interest payments changed to ____

A	beneficial; R9 600
B	beneficial; R4 800
C	beneficial; R8 000
D	costly; R10500

Explanation:

Detailed explanation-1: -If the consumer price index at the end of 2011 was 100 and at the end of 2012 was 120, then the rate of inflation for 2012 was: A. 25%.

Detailed explanation-2: -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-3: -when aggregate demand(AD) in the economy is higher than aggregate supply(AS), the prices in the economy rise leading to demand to pull inflation. It cannot be catered to by using the measure that reduces labor productivity as AD will not fall by reducing labor productivity. Thus, this is the correct option.

Detailed explanation-4: -Inflation is an increase in the overall price level. The official inflation rate is tracked by calculating changes in a measure called the consumer price index (CPI). The CPI tracks changes in the cost of living over time. Like other economic measures it does a pretty good job of this.

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ECONOMICS (CBSE/UGC NET)

ECONOMICS

INFLATION