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In: Economics

Due to inflation, future dollars can only buy less good and services then what can be...

Due to inflation, future dollars can only buy less good and services then what can be bought now. T/F?

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Expert Solution

Inflation is continuous rise in price level. Due to inflation the value of dollar decreases. The value of dollar is the purchasing power of dollar. Purchasing power of dollar is how much goods and services a unit of dollar can buy. With the increase in price level the value of dollar or the purchasing power of dollar in terms of goods and services decrease. For example if the price of 1 Pizza is $1 a person can buy 1 Pizza with $1. But if the price of Pizza increase to $2. The value of dollar decrease to half in terms of Pizza. Thus inflation or increase in price level causes less purchasing power or low value to the dollar.

There are several reasons for inflation namely increases money supply, increased demand and increased cost etc. Whatever may be the cause, it reduces the purchasing power of dollar. Thus inflation cause less command of dollar over goods and services in future. Therefore when inflation prevails, a unit of dollar can buy less in future.

Answer: True.

Rahul Sunny answered 2 years ago
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