Sia
Question
Statistics
Posted 8 months ago
Which of the following best describes what is necessary for consumers to maintain the same standard of living over time if there is inflation?
Choose 1 answer:
(A) Government spending must increase at the same rate as the rate of inflation
(B) Consumer incomes must increase at at least the same rate as the official rate of inflation
(C) Nominal incomes are the same over time
(D) Consumer incomes must increase at a faster rate than the official rate of inflation
(E) Business investment must increase at a faster rate than the official rate of inflation
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Answer from Sia
Posted 8 months ago
Solution by Steps
step 1
To maintain the same standard of living during inflation, consumers' purchasing power must remain constant
step 2
Purchasing power is maintained if the increase in consumer incomes matches or exceeds the rate of inflation
step 3
Option (B) states that consumer incomes must increase at at least the same rate as the official rate of inflation, which would allow consumers to maintain their purchasing power and, consequently, their standard of living
Answer
B
Key Concept
Purchasing Power Parity
Explanation
To maintain the same standard of living in the face of inflation, consumers' incomes must increase at least at the same rate as inflation to preserve purchasing power.
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