Which of the following statements about inflation is true?
A) The consumer price index is a good way of measuring inflation.
B) Standard of living increases with inflation.
C) Inflation increases the purchasing power of consumer dollars.
D) Inflation occurs when the amount of money injected into an economy is less than the increase in actual output.

Question

Quizplus · Accepted Answer

The consumer price index (CPI) is used as a measure of inflation, tracking the changes in the price of a representative basket of goods and services purchased by households.

Note: Choices B and C are incorrect. Inflation actually decreases the purchasing power of consumer dollars, as prices rise and each dollar can buy fewer goods and services over time. Additionally, while standard of living may increase with economic growth, inflation can erode those gains and create instability in an economy. Choice D is also incorrect as inflation typically occurs when there is too much money chasing too few goods, leading to price increases.

Which of the Following Statements About Inflation Is True