People complain that inflation increases the cost of goods and ...

[Collmarie]

People complain that inflation increases the cost of goods and services and therefore reduces their purchasing power. If inflation and income grow at the same rate, is this complaint valid? Explain carefully.
 
  What will be an ideal response?

Question 2

Which of the following is the source of revenue for Medicare and Social Security in the United States?
 
  A) individual income taxes B) social insurance taxes
  C) sales taxes D) property taxes

[jesse.fleming]

Answer to Question 1

If inflation and income grow at the same rate, real income will be constant as inflation increases both total expenditures and total income by the same amount. All of the money that a business receives on the sale of its product must be paid out as income to the owners of the factors of production. If the prices of final goods and services increase (inflation), then there is more money for the businesses to pay out as income. Therefore, on average, the buying power of income will remain constant. The complaint is not valid.

Answer to Question 2

B