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If the price index for the year, say 1960 be 110.3 and the price index for the year, say 1950 be 98.4, then the purchasing power of money (Rupees) of 1950 will in 1960 is
- a)Rs. 1.12
- b)Rs. 1.25
- c)Rs. 1.37
- d)None of these.
Correct answer is option 'A'. Can you explain this answer?
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Most Upvoted Answer
If the price index for the year, say 1960 be 110.3 and the price index...
Explanation:
To calculate the purchasing power of money in 1960 compared to 1950, we need to find the ratio of the price indices.
Step 1: Calculate the ratio of the price indices:
Price index ratio = Price index of 1960 / Price index of 1950
= 110.3 / 98.4
= 1.12
Step 2: The ratio obtained in Step 1 represents the change in the general price level from 1950 to 1960. Therefore, it can also be considered as the change in the purchasing power of money.
Hence, the purchasing power of money in 1960 compared to 1950 is 1.12 times, or Rs. 1.12.
Additional Information:
Price Index:
A price index is a measure of the average price level of goods and services in an economy over a period of time. It is calculated by taking the price of a basket of goods and services in a particular year (base year) and comparing it to the price of the same basket of goods and services in other years.
Purchasing Power of Money:
Purchasing power of money refers to the amount of goods and services that can be obtained with a given amount of money. It is influenced by the general price level in the economy. If prices increase, the purchasing power of money decreases, and vice versa.
To calculate the purchasing power of money in 1960 compared to 1950, we need to find the ratio of the price indices.
Step 1: Calculate the ratio of the price indices:
Price index ratio = Price index of 1960 / Price index of 1950
= 110.3 / 98.4
= 1.12
Step 2: The ratio obtained in Step 1 represents the change in the general price level from 1950 to 1960. Therefore, it can also be considered as the change in the purchasing power of money.
Hence, the purchasing power of money in 1960 compared to 1950 is 1.12 times, or Rs. 1.12.
Additional Information:
Price Index:
A price index is a measure of the average price level of goods and services in an economy over a period of time. It is calculated by taking the price of a basket of goods and services in a particular year (base year) and comparing it to the price of the same basket of goods and services in other years.
Purchasing Power of Money:
Purchasing power of money refers to the amount of goods and services that can be obtained with a given amount of money. It is influenced by the general price level in the economy. If prices increase, the purchasing power of money decreases, and vice versa.
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Community Answer
If the price index for the year, say 1960 be 110.3 and the price index...
The purchasing power of money refers to the amount of goods and services that can be purchased with a given amount of money. It is influenced by changes in the price level, as measured by the price index.
Given that the price index for the year 1960 is 110.3 and the price index for the year 1950 is 98.4, we can calculate the purchasing power of money from 1950 in 1960 using the formula:
Purchasing Power = (Price Index in 1960 / Price Index in 1950) * Amount of Money in 1950
Let's calculate the purchasing power:
Purchasing Power = (110.3 / 98.4) * Amount of Money in 1950
Simplifying the equation:
Purchasing Power = 1.12 * Amount of Money in 1950
Therefore, the purchasing power of money from 1950 in 1960 is 1.12 times the amount of money in 1950.
So, the correct answer is option A) Rs. 1.12.
Given that the price index for the year 1960 is 110.3 and the price index for the year 1950 is 98.4, we can calculate the purchasing power of money from 1950 in 1960 using the formula:
Purchasing Power = (Price Index in 1960 / Price Index in 1950) * Amount of Money in 1950
Let's calculate the purchasing power:
Purchasing Power = (110.3 / 98.4) * Amount of Money in 1950
Simplifying the equation:
Purchasing Power = 1.12 * Amount of Money in 1950
Therefore, the purchasing power of money from 1950 in 1960 is 1.12 times the amount of money in 1950.
So, the correct answer is option A) Rs. 1.12.
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If the price index for the year, say 1960 be 110.3 and the price index for the year, say 1950 be 98.4, then the purchasing power of money (Rupees) of 1950 will in 1960 isa)Rs. 1.12b)Rs. 1.25c)Rs. 1.37d)None of these.Correct answer is option 'A'. Can you explain this answer?
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