Your Friend Shahla Argues That Inflation Is Bad for the Economy

question 28

Multiple Choice

Your friend Shahla argues that inflation is bad for the economy because it lowers everyone's purchasing power.How would an economist respond to Shahla's statement?

• A) Her statement is true.
• B) Her statement is false because inflation redistributes income but does not change the average level of income in the economy.
• C) Her statement is true when everyone's nominal income changes by the same amount.
• D) Her statement is true when wages and benefits are not indexed to the CPI.
• E) Her statement is true only in a closed economy.

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Definitions:

Larger Business

A larger business is an expansive and typically more established enterprise, often characterized by a vast array of resources, a diverse product or service line, and a considerable employee base.

Competitive Advantage

An attribute or ability that allows an organization to outperform its competitors, often leading to greater sales or margins.

Inertia

A tendency to do nothing or remain unchanged, often leading to stagnation.

Marketplace

A venue where buyers and sellers interact to exchange goods, services, or information.