Question

The term inflation is used to describe a(n):

a. ​decline in nominal income.

b. ​economic problem faced only by the elderly population.

c. ​rise in the value of money.

d. ​general reduction in prices.

e. ​sustained increase in the price level.

Answer 1

Introduction

Inflation is correctly defined as the gradual and sustained increase in the prices of goods and services that are produced in a country respectively.

Over the years, one can clearly identify that prices of most goods and services increase over a period of time. This phenomenon is referred to as inflation. A condition wherein this harms the economy and is too adverse is known as hyperinflation.

Case Specifics:-

To answer this case let us look at all the options available to arrive at the conclusive decision as explained above, also we will try to understand each concept separately.

(A) Decline in nominal income.

Nominal income represents that part of the income which is not adjusted by inflation. Real Income on the other hand is adjusted by inflation to represent the worth of money in the sense that the amount of goods and services which one can buy from a given some of money.

A decline in nominal incomes indicates low level of production and sales in an economy and is not the correct definition of inflation. Therefore option (A) Decline in Nominal Income is False

(B) Economic problem faced only by the elderly population.

The problem of inflation is faced by elderly and the youth alike and therefore the option is False

(C) Rise in the Value of Money

Rise in value of money indicates a positive for the economy of the nation and a clear indication that the country is doing well as a whole.

It is not the definition of inflation and is therefore false.

(D) Reduction in Price Levels

Reduction in price levels refers to deflation which cause the prices of goods and services to fall down rapidly. It is just the opposite of inflation and the option is False

(E) Sustained Increase in Price Levels

The option clearly depicts a rise in the price levels and is the correct option. Inflation refers to a sustained increase in the general price levels of goods and services produced in an economy.

Please feel free to ask your doubts in the comments section.