Joe and his wife are both retired and they live on Social Security. When asked about their greatest economic worry both replied "inflation." Why?
Because inflation increases their marginal utility.
Because inflation reduces their spending power.
Because inflation reduces profit motive.
Because inflation increases their rate of savings.
The correct answer is: Because inflation reduces their spending power.
Inflation refers to the general increase in prices of goods and services over time. As retired individuals living on fixed incomes like Social Security, Joe and his wife are likely concerned about inflation because it reduces their spending power. Inflation erodes the value of money over time, meaning that the same amount of money will buy fewer goods and services. This can lead to a decrease in their standard of living as they may struggle to afford the same level of expenses with their fixed income.