Read the following passage.
Understanding Inflation
A: In mainstream economics, the word "inflation" refers to a general rise in prices measured against a standard level of purchasing power. Previously the term was used to refer to an increase in the money supply, which is now referred to as expansionary monetary policy or monetary inflation. Inflation is measured by comparing two sets of goods at two points in time and computing the increase in cost not reflected by an increase in quality. There are, therefore, many measures of inflation depending on the specific circumstances. The most well known are the CPI which measures consumer prices, and the GDP deflator, which measures inflation in the whole of the domestic economy.
B: The prevailing view in mainstream economics is that inflation is caused by the interaction of the supply of money with output and interest rates. Mainstream economist views can be broadly divided into two camps: the "monetarists" who believe that monetary effects dominate all others in setting the rate of inflation, and the "Keynesians" who believe that the interaction of money, interest, and output dominate over other effects. Other theories, such as those of the Austrian school of economics, believe that inflation of overall prices is a result of an increase in the supply of money by central banking authorities.
C: Measuring inflation is a question of econometrics, finding objective ways of comparing nominal prices to real activity. In many places in economics, "real" variables need to be compared, in order to calculate GDP, effective interest rate and improvements in productivity. Each inflationary measure takes a "basket" of goods and services, then the prices of the items in the basket are compared to a previous time, then adjustments are made for the changes in the goods in the basket itself.
D: If inflation is high in an economy there are three main problems it can cause people on a fixed income e.g. pensioners, students will be worse off in real terms due to higher prices and equal income as before; this will lead to a reduction in the purchasing power of their income. Rising inflation can encourage trade unions to demand higher wages. This can cause a wage spiral. Also if strikes occur in an important industry which has a comparative advantage the nation may see a decrease in productivity and suffer.
E: Not given in any of the above paragraphs
Decide which paragraph, A to D, has the information given in each statement below. Select E if the information is not given in any of the paragraphs.
Inflation can be tackled successfully by financial planning. 2.
Inflation can cause a rise in wages. 3.
A comparison between minimum prices and real activity is a way of measuring inflation. 4.
The earlier understanding of the word inflation was more money in supply. 5.
Contrarian views about the real understanding of the concept of inflation. 6.
Good and services, both, are considered for any calculations. 7.
Economists have different views on how to tackle inflation. 8.
Broadly, there are two types of views about inflation. 9.