Answer :

a. No, the statement is false. Inflation is the continuous rise in the general price level of the economy. The rise in the price level is a sign of the fall in the money value i.e. more units of money should be given for purchasing the same commodity. This affects every section of the society especially the small income earners. Their money income does not change during inflation. So they are forced to cut down their consumption which reduces their standard of living as they have to pay more for everything.


b. Yes, the statement is correct. Value of money is the total units of the commodity the consumer is able to purchase using his given money and income. Changes in purchasing power determine the value of money. When the commodities are a high price, the value of money and the purchasing power falls resulting in a reduction in the consumption of the commodity and vice-versa.


c. No, the changes in the cost of living will definitely affect the living standards of the fixed income groups like pensioners. The change in the cost of living can be attributed to changes in the rate of inflation in the economy. Fixed incomes earners like pensioners, daily wage earners, manual workers and small vendors, workers in small enterprises and in private low-income jobs are all badly affected by the continuous rise in prices. Income of the consumers adjusted to present inflation is the real income. Their money income does not change during inflation. So they are forced to cut down their consumption which again reduces their standard of living as they have to pay more for everything.


d. Yes, the Central government workers are compensated for the rise in rice due to inflation by raising their Dearness Allowance (DA). Employees of the Central and State Government officials get an additional payment called Dearness Allowance or DA in compensation for the rise in prices. When prices rise by a certain amount, their salary and benefits also increase as the government compensates them for this rise in prices by paying them more DA. Therefore their income also increases, along with inflation.


e. No, WPI measures the change in price levels of both the consumer goods and the capital goods. It measures the prices changes at the wholesale price levels and estimates the inflation rate at the first stage of the transaction. It measures the prices paid by manufacturers and wholesalers.


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