Which of the following statements about inflation is true?
A) Inflation increases the purchasing power of consumer dollars.
B) Inflation occurs when people have more money to spend as the quantity of goods available increases.
C) Inflation occurs when the amount of money taken out of the economy exceeds the amount of money put into the economy.
D) Inflation and deflation are really almost synonymous in practice.
E) None of these.

Question

Quizplus · Accepted Answer

Inflation is defined as the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. Choices A, B, C, and D all contain misconceptions about inflation. A) is incorrect because inflation actually decreases the purchasing power of consumer dollars. B) is incorrect because inflation typically occurs when the money supply increases faster than the quantity of goods available, not when both money and goods increase together. C) is incorrect because inflation is more often associated with more money being put into the economy without a corresponding increase in goods and services, not the other way around. D) is incorrect because inflation and deflation are opposites; inflation is when prices increase, and deflation is when prices decrease.

Which of the Following Statements About Inflation Is True