Inflation does NOT reduce purchasing power if:
A) prices of essential products, such as food and gasoline, don't increase too much.
B) nominal wages rise at the same rate as prices.
C) it remains under 10% per year.
D) the Federal Reserve increases the money supply enough to offset it.

Question

Quizplus · Accepted Answer

If nominal wages rise at the same rate as prices, then the purchasing power of individuals remains the same. For example, if inflation is 3% and nominal wages also increase by 3%, then the real wages (purchasing power) of individuals remain unchanged. Therefore, inflation does not reduce their purchasing power.

Inflation Does NOT Reduce Purchasing Power If