Macroeconomics (Fourth Edition)
Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Chapter 8, Problem 1RQ
To determine

Defining inflation and its impact on retirement plan.

Expert Solution & Answer
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Explanation of Solution

Inflation refers to the continuous increase in the price of commodities over time. Inflation increases the cost of living and reduces purchasing power. A person puts $100 safe in hand today and decides to spend after 15 years. Due to increase in the price level, he will not able to purchase the same quantity of goods and services after 15 years. This means the purchasing power is reduced and he can buy less quantity than he could purchase today. On the other hand, if he deposits the amount in bank, he will get interest on that amount.

Economics Concept Introduction

Inflation: Inflation refers to the continuous increase in the piece of commodities over time.

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