Question

The purchasing power of the dollar would fall by 20% if the price index rises by:A. 44 percentB. 12.5 percentC. 25 percentD. 10 percent

Answer 1

Answer:

correct answer is C. 25 percent

Explanation:

solution

we relate purchasing power to the purchasing of product by consumer to investor for the prosperity of economy

so we consider here price index that is  = 100

and it is rise to =  125

so that  purchasing power will be decrease by  x to the $\frac{100x}{125}$

and money value will be lead to %change as

money value  = $\frac{x-\frac{100x}{125} }{x}$    .................1

money value  = 1 - 0.8

money value  = 0.2

money value  = 20%

so we can say that when we buy with 20% than purchase power will be fall as 25% increase in the price

so correct answer is C. 25 percent