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      Question

      Which one of the following is an effect of

      inflation: 
      A It leads to rise in purchasing power Correct Answer Incorrect Answer
      B It leads to increase in GDP Correct Answer Incorrect Answer
      C It leads to inflow of foreign investments Correct Answer Incorrect Answer
      D It leads to fall in purchasing power Correct Answer Incorrect Answer
      E None of the above Correct Answer Incorrect Answer

      Solution

      Inflation leads to fall in purchasing power. When the price level rises, each unit of currency buys fewer goods and services; consequently, inflation is also erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy.

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