Which of the following is a problem of inflation?

• A. Lower unemployment
• B. Falling standard of living
• C. Stable prices
• D. Higher productivity

Answer: (B)

Inflation erodes the purchasing power of money, so if prices rise faster than wages, people's real income falls. When prices go up but incomes don’t keep pace, households can buy less with the same amount of money, which often shows up as a lower standard of living. That connection—rising prices reducing what people can actually afford—explains why falling standard of living is the problem highlighted here.

Lower unemployment and higher productivity are typically seen as positive or neutral effects in relation to inflation, and stable prices would be desirable rather than problematic. So they don’t describe a problem caused by inflation in the same direct way.