Which of the following is correct about inflation?

Question

Quizplus · Accepted Answer

Inflation reduces the value of money over time, so to maintain or increase buying power, you need to earn a rate of return higher than the rate of inflation. This means that if inflation is 7% and your rate of return in your savings account is 4%, you will actually experience an overall loss in buying power as your money will be worth less due to inflation. As inflation rates increase, interest rates on savings accounts generally increase as well, to keep up with inflation and to incentivize savers to keep their money in the account. Therefore, option B is incorrect. Option C is also incorrect because inflation and interest rates are directly related to each other when it comes to savings accounts. Option A and E are also incorrect as they do not take into account the impact of inflation on buying power.

Which of the Following Is Correct About Inflation