Question

Suppose you are an advisor to the government of a country X. The prices of goods and services in the country are galloping. Identify the problem and find a solution from the given options so that you can help country X.

• A. Inflation is decreasing the purchasing power.
• B. Inflation is increasing the purchasing power.
• C. The increase in prices of goods should be controlled.
• D. The government should print more money and give them to its people.

Answer 1

Answer: (A), (C)

The increase in prices of goods should be controlled.

When prices increase, the purchasing power of people decreases, which subsequently leads to a decline in the value of the currency. The decline in purchasing power affects not only the consumers but also investors and stock prices. Therefore, the government frames policies and regulates the market conditions accordingly to maintain the currency value at required levels.