Suppose a family's income increases by 3 percent at the same time that inflation is 5 percent

Economics May 27, 2021

Suppose a family's income increases by 3 percent at the same time that inflation is 5 percent. Then the

Multiple Choice
O
purchasing power of their income will decrease.

family's standard of living will increase.
0 purchasing power of their income will increase by 8%.
0 purchasing power of their savings will increase by 8%.

Expert Solution

The correct option is 1st "Purchasing power of their income will decrease". Purchasing power is the quantity of goods and services that can be purchased with a certain amount of money. In this case, Inflation rate is greater than rate of increase in income (5%>3%), purchasing power of their income will decrease.

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