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8 November, 17:25

Suppose that the price of food increases by 2%, the price of clothing increases by 4%, and food and clothing each account for half of expenditures; therefore, the overall inflation rate is 3%. A 3% increase in income is necessary to achieve the same level of utility. true/false

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  1. 8 November, 17:43
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    True

    Explanation:

    Since the overall inflation is 3%, a rise in income of 3% is necessary to balance off the rise in inflation.
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