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Question
Read the following statement carefully and choose the correct alternative given below:
Assertion (A): Value of money falls during inflation.
Reason (R): Government employees are compensated for inflation by raising their dearness allowance.
Options
Both Assertion (A) and Reason (B) are true and Reason (R) is the correct explanation of Assertion (A).
Both Assertion (A) and Reason (B) are true and Reason (R) is not the correct explanation of Assertion (A).
Assertion (A) is true but Reason (R) is false.
Assertion (A) is false but Reason (R) is true.
Solution
Both Assertion (A) and Reason (B) are true and Reason (R) is not the correct explanation of Assertion (A).
Explanation:
- "Value of money falls during inflation" is a true statement. Inflation reduces the purchasing power of money, which means that the same amount of money can buy fewer products and services.
- "Government employees are compensated for inflation by raising their dearness allowance" has also been proven. Governments often adjust dearness allowances to help employees deal with inflation. However, this is not a direct explanation for why the value of money decreases with inflation.
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