Question

Inflation means that Multiple Choice prices on average are rising, although some particular prices may be falling. real incomes are rising. all prices are rising at approximately the same rate. all prices are rising, but at different rates.

Answer 1

Answer:

The correct answer is prices in the aggregate are rising, although some particular prices may be falling.

Explanation:

Inflation is a generalized increase in the prices of goods and services in an economy over a period of time.

Inflation exists when the prices of the whole goods and services of an economy increase steadily. That is, when the average price of all goods and services in a country goes up.

The price increase causes the loss of purchasing power of citizens. Or put another way, if there is inflation it means that with the same money we can buy less things than before.

Often it is said that inflation is good, but it is not that it is good in itself, but that although the prices of an economy rise, wages also tend to rise according to that price increase. Thus, in the end the purchasing power of citizens remains stable. It can be good, as long as it is stable and not very high, for the following reasons:

• The rise in prices helps reduce the value of debts, both from households, as well as from companies and the Government. This is because if there is inflation in an economy and our wages rise at the same rate, but the debt remains the same as before, the real value of the debt will be lower than before prices rose.

• The rise in prices also causes people to prefer to consume now instead of later, because then prices will be more expensive. This is fundamental so that money circulates and there is transmission of goods in an economy. It is the gear of capitalism.

Disadvantages of inflation

Its main drawbacks are:

• Loss of purchasing power: If the rise in wages is not at least equal to the rise in prices, the purchasing power will fall. We could be happy if we raise the salary by 10% in one year, but if inflation has been 20%, we can actually buy 10% less with that salary.

• Saving decreases: Inflation causes money to lose value, so it will motivate you to consume and spend money, instead of saving it, since if money is going to be worth less in the future, citizens and investors will prefer to spend it now.