During times of rising prices (inflation), which of the following is NOT an accurate statement?

• A. Consumers may reduce their spending on non-essential goods.
• B. The purchasing power of money decreases.
• C. The real value of fixed incomes increases.
• D. Businesses may face higher costs for raw materials.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of inflation. Inflation refers to a general increase in prices over time, which means that the purchasing power of money decreases because each unit of currency buys fewer goods and services than before.
2. Step 2: Analyze the statement 'Consumers may reduce their spending on non-essential goods.' During inflation, consumers often prioritize essential goods and cut back on non-essential spending, so this statement is generally accurate.
3. Step 3: Consider the statement 'The purchasing power of money decreases.' Since inflation means rising prices, the real value or purchasing power of money falls, making this statement accurate.
4. Step 4: Evaluate the statement 'The real value of fixed incomes increases.' Fixed incomes do not adjust automatically with inflation, so their real value typically decreases, not increases. This statement is therefore inaccurate during inflation.
5. Step 5: Review the statement 'Businesses may face higher costs for raw materials.' Inflation often causes input prices to rise, increasing business costs, so this statement is accurate.