With respect to inflation and deflation, which is correct?
A) Inflation is caused when consumers buy too many luxury goods.
B) When inflation occurs, people have more money to spend, and there will be an increased quantity of goods for sale.
C) When inflation occurs, purchasing power decreases.
D) Deflation is evident when the amount of money injected into the economic system increases faster than actual output.
E) All of these statements are correct.

Question

Quizplus · Accepted Answer

Inflation is the decrease in the purchasing power of a currency, meaning that the same amount of money can buy fewer goods and services. The other statements are incorrect.  A) Inflation is not caused by the purchase of luxury goods; it is typically caused by factors such as an increase in the money supply or a decrease in the supply of goods. B) Inflation does not result in an increase in the quantity of goods for sale; it usually leads to an increase in prices. D) Deflation is the opposite of inflation and occurs when the amount of money injected into the economy decreases faster than output.

With Respect to Inflation and Deflation, Which Is Correct