Question

Statement (1): Inflation erodes purchasing power of money.

Statement (2): Inflation disproportionately impacts lower-income consumers.

Options

• Both statements are true.

• Both statements are false.

• Statement 1 is true but Statement 2 is false.

• Statement 2 is true but Statement 1 is false.

Answer 1

Both statements are true.

Explanation:

• Statement (1): Inflation reduces the purchasing power of money, implying that the same amount of money buys fewer goods and services as prices rise.
• Statement (2): Lower-income consumers are particularly affected by inflation because they spend a greater proportion of their income on basic services and goods, the prices of which frequently rise during inflation.