Question

All-Items inflation:

a.is inflation measured using the retail price index.

b.measures price changes with food and energy costs taken out of the basket.

c.is inflation measured using the producer price index.

d.measures the changes in prices for the entire market basket of the average urban consumer.

Answer 1

Correct option is: d.

All-items inflation calculates inflation rate using all the items in consumer basket. It helps to measure total inflation within a particular country. In short-term, when there is increase in All-items inflation, it represents periods of inflation while when there is decrease in All-items inflation, it represents periods of deflation during which buying power of consumers increases. The main causes of inflation are high demand & low supply of goods which causes demand supply gap & therefore, increase in prices, excess circulation of money also results in inflation, as money loses its purchasing power.