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# Once consumers recognize that a period of inflation has

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Senior Manager
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Once consumers recognize that a period of inflation has  [#permalink]

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Updated on: 05 Oct 2017, 01:01
11
00:00

Difficulty:

65% (hard)

Question Stats:

62% (02:07) correct 38% (02:18) wrong based on 544 sessions

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Once consumers recognize that a period of inflation has begun, there is generally an increase in consumer spending. This increase can be readily explained by consumers’ desire not to postpone purchases that will surely increase in price. But during protracted periods of inflation, consumers eventually begin to put off making even routine purchases, despite the fact that consumers continue to expect price to rise and despite the fact that salaries also rise during inflationary periods.

Which one of the following, if true, most helps to explain the apparent inconsistency in consumer behavior described above?

(A) During times of inflation consumers save more money than they do in noninflationary periods.

(B) There is usually a lag between the leading economic indicators first signaling the onset of an inflationary period and consumers’ recognition of its onset.

(C) No generalization that describes human behavior will be true of every type of human behavior.

(D) If significant numbers of consumers are unable to make purchases, prices will eventually fall but salaries will not be directly affected.

(E) Consumers’ purchasing power decreases during periods of protracted inflation since salaries do not keep pace with prices.

Source: LSAT

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Originally posted by jamifahad on 28 Sep 2011, 11:36.
Last edited by broall on 05 Oct 2017, 01:01, edited 1 time in total.
Reformatted question
Manager
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Re: Once consumers recognize that a period of inflation has  [#permalink]

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28 Sep 2011, 17:26
2
B is incorrect because it does not resolve the paradox of consumers putting off purchases during protracted inflation periods.

E, however, does explain the apparent paradox. Even though consumers continue to make purchases during inflation periods, something happens during protracted inflation periods that does not allow consumers to. If they don't have enough money to continue making purchases during protracted inflation periods, as indicated in E, then this could explain the paradoxical consumer spending behavior.
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Re: Once consumers recognize that a period of inflation has  [#permalink]

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28 Sep 2011, 22:29
Question is :
Why does consumers put off spending in protracted periods?

A - Saving - OOS
B- Timing is not an issue here -OOS
C- Very general statement. avoid this kind of general statements. They are gud for nothing.
D- May be true. Only if consumers want to lower prices.
E- If salaries do not keep pace with Rising prices, then one has to reduce spending for sure.
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Re: Once consumers recognize that a period of inflation has  [#permalink]

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29 Sep 2011, 17:11
sesamemochi wrote:
B is incorrect because it does not resolve the paradox of consumers putting off purchases during protracted inflation periods.

E, however, does explain the apparent paradox. Even though consumers continue to make purchases during inflation periods, something happens during protracted inflation periods that does not allow consumers to. If they don't have enough money to continue making purchases during protracted inflation periods, as indicated in E, then this could explain the paradoxical consumer spending behavior.

in Addition the salary rise during inflation period, C was too general for me and picked E
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Re: Once consumers recognize that a period of inflation has  [#permalink]

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14 Nov 2016, 01:23
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Hi,

The last part of the argument says that Salary rises, " But during protracted periods of inflation, consumers eventually begin to put off making even routine purchases, despite the fact that consumers continue to expect price to rise and despite the fact that salaries also rise during inflationary periods."". Then how will "E "be the answer ?

Thanks
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Re: Once consumers recognize that a period of inflation has  [#permalink]

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02 Sep 2017, 12:29
dhanyamv88 wrote:
Hi,

The last part of the argument says that Salary rises, " But during protracted periods of inflation, consumers eventually begin to put off making even routine purchases, despite the fact that consumers continue to expect price to rise and despite the fact that salaries also rise during inflationary periods."". Then how will "E "be the answer ?

Thanks

E. Consumers’ purchasing power decreases during periods of protracted inflation since salaries do not keep pace with prices.

Option E does not contradict this statement.
Inflation + 10%
Salaries + 5%
Sor salaries does not keep pace with prices
Consumers begin to spend less than before
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Re: Once consumers recognize that a period of inflation has  [#permalink]

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26 Dec 2018, 15:01
I don't understand how E can be more correct than A, when it explicitly states that "salaries also rise during inflationary periods.".
A would mean consumers have less income to spend?
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Re: Once consumers recognize that a period of inflation has  [#permalink]

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13 May 2019, 11:37
Nijssen wrote:
I don't understand how E can be more correct than A, when it explicitly states that "salaries also rise during inflationary periods.".
A would mean consumers have less income to spend?

A addresses non-inflationary period. Such period is not in the scope of the argument. So the choice cannot explain why consumers put breaks on spending during a protracted inflationary period.

Hope this helps
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Once consumers recognize that a period of inflation has  [#permalink]

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13 May 2019, 20:00
I feel that A should be the right answer over E because we havent been the given anything related to the comparison of salary and price which does not give us conclusive evidence to say that the salary is not enough to buy the goods during protracted inflation.
Once consumers recognize that a period of inflation has   [#permalink] 13 May 2019, 20:00
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