Question

Martha visits a departmental store and discovers that a box of exotic candles will cost her ten percent more than what she had paid six months ago. The increase in prices is same across the country. In this scenario, which of the following statements is true?1. The departmental store is trying to earn profits by increasing the prices of its goods.2. She has to pay twelve percent more than what she paid last month.3. She will have immediate purchasing power if she had a pay raise to match the inflation.4. The candles' subjective value increases with the increase in inflation.

Answer 1

Answer: She will have immediate purchasing power if she had a pay raise to match the inflation.

Explanation:

Martha's country has experienced an inflation, which is a general rise in price of commodities in a market. In an inflation, the local currency losses value, therefore Martha would need an income increase to be able to purchase the exotic candles.