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In: Economics

Your grandfather tells you that his annual income increased at an average rate of eight percent...

Your grandfather tells you that his annual income increased at an average rate of eight percent over his lifetime. He complains, however, that the average inflation rate of three percent reduced his ability to buy all the things he could have purchased if inflation had been zero. You respectfully tell your grandfather that he is committing the _____, because his annual income would have increased at an average rate of only five percent if inflation had been zero.

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Expert Solution

The answer is as follows:-

Fallacy of inflation

Inflation fallacy is the fundamentally flawed concept that inflation weakens purchasing power.

Rahul Sunny answered 2 years ago
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