Question

Melita heard that there had been inflation last month. She laughed and did not believe it. When asked why not, she said that last week she spend less at the grocery store because the cost of food had come down.
Which of the following is the correct response?

A. Melita is right, all prices must be rising for there to be inflation.
B. Melita is right, if food prices are lower, so are all other prices.
C. Melita is wrong, food prices are not used to calculate the rate of inflation.
D. Melita is wrong, food prices may have fallen, but other prices have risen so the average price of goods is higher.

Answer 1

Answer:

D. Melita is wrong, food prices may have fallen, but other prices have risen so the average price of goods is higher.

Explanation:

• Remember that inflation is a measure of how the general level of prices evolve over time, and to calculate it, the prices of many items are taken into account.
• Then, one price in particular may have fallen, but if inflation is possitive, this is because in average, the prices of the rest of the goods and services taken into account are rising.