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Read these lines: "If prices go up but income doesn't rise or rises at a slower rate, a given amount of income buys less, and purchasing power falls. For example, if the price of a basket of groceries rises from $30 to $40 but your salary remains the same, you can buy only 75 percent as many groceries for $30." Based on the quoted lines, what happens to the shopper once the basket price rises from $30 to $40?
AThe same pay now covers about half as many groceries as before
BThe same pay now covers only three quarters as many groceries
CThe shopper's salary rises by 25 percent to match the new prices
DThe shopper buys the same amount by spending 75 percent more pay
Answer & Solution
Correct answer: B. The same pay now covers only three quarters as many groceries
1. The quoted lines set the scene: prices rise from $30 to $40 while the salary stays the same.
2. They then state the result, that the shopper can buy only 75 percent as many groceries for the same $30.
3. 75 percent is the same as three quarters, so the shopper's pay now covers three quarters of the old amount.
4. Half as many would be 50 percent, a bigger cut than the quoted lines describe.
5. The salary is said to remain the same, so the pay rise option contradicts the quoted lines directly.
6. Nothing in the quoted lines says the shopper spends more to keep the same amount; the lines hold spending fixed at $30 and shrink the basket instead.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 1 "Understanding Economic Systems and Business", section 1.4 Macroeconomics: The Big Picture_
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