If the general price index rises while the amount of money remains unchanged, the purchasing power of money will generally:
Correct answer: C. Decrease in the same proportion
- A. Increase in the same proportion
- B. Remain fixed at the base value
- C. Decrease in the same proportion
- D. Become equal to the price index
Explanation
Purchasing power moves inversely with the price level. When prices rise, the same monetary unit buys fewer goods and services, so its purchasing power falls.
Report an error
The more specific you are, the faster it gets fixed. A source beats an opinion.
Prefer email? [email protected]
About Index Numbers
Index numbers measure relative changes in prices, quantities or values over time using a base period. Work includes simple and weighted price indices, aggregate methods, consumer price calculations, percentage change and purchasing power, with attention to choosing a base year and interpreting an index rather than treating it as an absolute amount.
Practise Index Numbers
30 free Index Numbers MCQs from Quantitative Methods, each with the correct answer and an explanation. Unlimited attempts, no account needed.
Discussion
Stuck on an option, or know a faster way to get there? Ask or explain it here.
No comments yet. Be the first to explain this one.
Exams that ask Quantitative Methods questions like this
Quantitative Methods is on this paper prepared for on TestUstad, and all of them draw the same bank, so this question is worth knowing for it.
More Index Numbers questions
In a family-budget method of a consumer price index, commodity weights usually represent:
A major limitation of a fixed-base index is that it may:
In the chain-base method, each year's index is generally compared with:
What is the main purpose of deflating a monetary series by a price index?
The Marshall-Edgeworth price index uses which quantities as weights?
What does the time-reversal test require of a satisfactory price index?