The anticipated inflation rate is 5 percent. In order for purchasing power to remain constant, the money wage rate must rise by
A) 2 percent.
B) 5 percent.
C) 7 percent.
D) 12 percent.

Question

Quizplus · Accepted Answer

To maintain the same purchasing power when the inflation rate is 5 percent, the money wage rate must also increase by 5 percent. This compensates for the decrease in the value of money due to inflation, allowing individuals to purchase the same amount of goods and services as before.

The Anticipated Inflation Rate Is 5 Percent