Passage (Economics)

Inflation means that the general level of prices is rising, so each unit of money buys less than before. A person whose salary stays the same while prices rise is effectively becoming poorer, even though the number on the payslip has not changed.

Question

Which conclusion is best supported by the passage?

Options

• (A) Inflation always raises salaries.
• (B) Prices fall during inflation.
• (C) The numbers on a payslip lose all meaning.
• (D) Rising prices reduce the purchasing power of an unchanged income.

Answer

(D) Rising prices reduce the purchasing power of an unchanged income.

Solution

1. The passage defines inflation as rising prices, so each unit of money buys less.
2. It then says that an unchanged salary leaves a person effectively poorer.
3. This means rising prices reduce the purchasing power of an unchanged income, which is option D.