Question

Which of the following is not a cost imposed by inflation?

A. Firms must pay for changing prices on products and printing new catalogs.

B. Inflation reduces the affordability of goods and services to the average consumer.

C. Banks can lose if they under predict inflation and charge an interest rate that does not completely compensate for inflation.

D. The money that consumers and firms hold loses its purchasing power.

Answer 1

Option B.

• The statement that inflation reduces the affordability of goods and services to the average consumer is not a cost imposed by inflation.
• Inflation refers to the rise in the general price level of an economy.
• Higher inflation reduces the real value of their saving and real incomes of people.
• It does not reduce the affordability of goods and services to the consumers because inflation doesnt remain constant for long and they delay making purchases with an expectation of lower prices in future.
• When the Economy experiences rising prices, and if the wage inflation occurs, then the people's affordability doesn't decrease rather they wait till the prices come back to a normal level again.