## Lukecrayonz 3 years ago The purchasing power of the dollar: A) cannot be predicted during inflationary periods B) is unaffected by inflation C) decreases during inflationary periods D) increases during inflationary periods

1. Shane_B

If inflation goes up, the value of the dollar goes down...which means you can't buy as much for each dollar. Which answer does that match?

2. Lukecrayonz

It's either A or C, but just because inflation goes up doesn't mean you can't buy as much, your real income may increase.

3. Lukecrayonz

Which is why I'm asking. Yours is clearly C, but I feel like A is a trick.

4. Shane_B

Even if you make 10 times more...it doesn't mean you can buy more per your dollar when inflation increases.

5. suneja

during inflation value of currency depreciates, ie with the same amt of money u can now buy less of goods. wic means purchasing power of currency (here dollar ) decreases during inflation.

6. Lukecrayonz

It's just my teacher, she insists on making it confusing. She wrote the textbook and workbook, so she may mean it a different way. Thanks though! I have another question (or few)

7. Shane_B

I don't think this particular question is ambiguous at all :)

8. Lukecrayonz

|dw:1348639774849:dw| What is the base year?

9. suneja

yr 1

10. Lukecrayonz

Any reason? Is it because it's 100 (1.0) or because its the first year?

11. Shane_B

"Base" year in everything I've seen is always the first year.

12. Lukecrayonz

Between year 2 and 3, prices rose by approximately:

13. Shane_B

106.5-103

14. Lukecrayonz

B, i just like to type it out just incase someone else happens to have these questions in the future

15. Lukecrayonz

If prices rose by 5.4% in year 5, then the CPI in year 5 is approximately:

16. suneja

base yr is something that u take as a measuring rod and with respect to that u compare the other variable. so i think i shud be yr 1. wats the correct ans to tis

17. Lukecrayonz

116.4

18. Shane_B

111*1.054

19. Lukecrayonz

Inflation is: A) not regarded as an economic problem because every person's nominal income rises in proportion to the increase in the price level B) Regarded as an economic problem because every person's nominal income rises in proportion to the increase in the price level C) REgarded as an economic problem because it can have redistributive effects, lead to increased speculation, and cause greater uncertainty D) Regarded as an economic problem because where there is inflation, everyone is worse off.

20. JakeV8

Unless this is some trick question concerning relative exchange rates with foreign currencies, the answer must be (C). Given a certain number of dollars and holding everything else constant, purchasing power decreases during inflationary periods. Increasing one's income doesn't change the issue... every dollar in today's economy purchase relatively less in tomorrow's economy if inflation is occurring

21. Lukecrayonz

And oh right Shane.