Question

Social Security payments are indexed for inflation using the CPI. A recent newspaper editorial claimed that Social Security recipients are harmed by years of low inflation because they do not receive as large an increase in their payments as they do in years of high inflation. Which of the following statements is correct? The newspaper editorial is correct under all circumstances. The newspaper editorial is correct if the market basket consumed by Social Security recipients is the same as the market basket used to compute the CPI. The newspaper editorial could be correct if the prices of the goods consumed by Social Security recipients change at a different rate than the prices of the goods in the market basket used to compute the CPI The newspaper editorial is incorrect under all circumstances.

Answer 1

Answer:

The newspaper editorial is incorrect under all circumstances.

Explanation:

Social Security payments are indexed for inflation using the CPI.  

A recent newspaper editorial claimed that Social Security recipients are harmed by years of low inflation because they do not receive as large an increase in their payments as they do in years of high inflation.  

This is not correct. The social security payments are given according to the rate of inflation so that the purchasing power of the recipients remain the same.  

At higher inflation rate reduces the purchasing power while at a lower inflation rate, the purchasing power is not that much affected. Social Security payments indexed for inflation keeps the purchasing power constant and recipients are not harmed.