Inflation is said to be occurring when the
A) price of an individual commodity rises steadily because of increases in demand.
B) price of an individual commodity rises steadily because of decreases in supply.
C) value of the dollar increases.
D) consumer price index falls.
E) money income grows at a faster rate than real income.

Question

Quizplus · Accepted Answer

Inflation occurs when there is a persistent increase in the general level of prices. This can happen when money income grows at a faster rate than real income, leading to an excess of demand over supply in markets, and causing prices to rise. A steady increase in the price of an individual commodity due to increases in demand (A) or decreases in supply (B) is not necessarily inflation, but could be. The value of the dollar increasing (C) or the consumer price index falling (D) indicate deflation, which is the opposite of inflation.

Inflation Is Said to Be Occurring When the