ECONOMICS
INFLATION
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
Certainty in the market
|
|
|
Potential fall in real income
|
|
|
Increase in competitiveness
|
|
|
Increase in real savings
|
Detailed explanation-1: -During inflation, people earning a fixed income face a lot of damage because the rate of increase in wages is always behind the rate of increase in prices. Therefore, inflation results in a drop in the real purchasing power of people earning a fixed income.
Detailed explanation-2: -As inflation increases, investment falls, and the capital stock declines decline over time. While consumption may decline as well, this has no direct bearing on capital accumulation. The declining capital stock reduces GDP and makes labor less productive. Therefore, labor demand declines and real wages fall.
Detailed explanation-3: -In an inflationary environment, unevenly rising prices inevitably reduce the purchasing power of some consumers, and this erosion of real income is the single biggest cost of inflation. Inflation can also distort purchasing power over time for recipients and payers of fixed interest rates.
Detailed explanation-4: -Key Takeaways. Real income, also known as real wage, is how much money an individual or entity makes after adjusting for inflation. Real income differs from nominal income, which has no such adjustments.