Which of the following statements about inflation is true?
A) The consumer price index is a good way of measuring inflation.
B) Productivity decreases the purchasing power of consumer dollars.
C) Inflation increases the purchasing power of consumer dollars.
D) Localized price increases can cause inflation across the economic system.
E) The amount of money tends to be distributed evenly during inflationary periods.

Question

Quizplus · Accepted Answer

The consumer price index (CPI) is a commonly used measurement of inflation as it tracks the prices of a standard set of goods and services purchased by consumers. Increases in the CPI over time indicate that the cost of living is increasing due to inflation.

B) is incorrect because productivity increases the purchasing power of consumer dollars, not decreases.

C) is incorrect because inflation decreases the purchasing power of consumer dollars as the same amount of money can purchase fewer goods and services over time.

D) is incorrect because localized price increases only affect specific markets and do not necessarily cause inflation across the entire economy.

E) is incorrect because inflation often results in uneven distribution of wealth and can actually exacerbate income inequality.

Which of the Following Statements About Inflation Is True