Which situation best Illustrates the effects of inflation
A)A restaurant order cells are a business for $200,000
B)A software company lower their price is apps by 20%
C)A business owner receives a $10,000 loan from a bank
D)A type of shirt says sold for 10 in the 2000 cost for $15 or 2020
Answers
Topic - Index number
Explanation:
In order to discuss the problem of inflation, we need to understand two basic concepts namely The base year and another one The current year.
- Base year - It is the year with which other prices of goods at different time are being compared to.
- Current year - It is the year for which comparisons are made.
If there is a situation of comparison of prices of goods from base year with the prices of current year, this situation is called inflation. For ex- Prices of shoes were Rs. 2,000 in the year 2005 but now in the year 2021, it's prices are Rs. 5,000.
Here,
- Base year is 2005
- Current year is 2021
and yes, this situation is an example of inflation.
We cannot define any statement without given any comparison of prices as inflation.
In the given problem, we need to find the statement which describes the situation of inflation. I think you could be able to find the answer now, Yes, it's option [D].
Other options don't follow the concept of base year and current year. And in option [D], we are given a situation of comparison of prices of base year with current year and hence the correct answer.[tex][/tex]
Correct answer is option [D]
Additional Info:-
Selection of base year is also a major problem. While selection of the base year, following points should be kept in mind:
- Base period should not be too short nor too long.
- Base year should not be too near nor too far.
- Base year should not have faced much up and downs in the economy like pandemic.