Q. Consider the following statements:

1. Inflation reduces the purchasing power of money.
2. Deflation increases the real value of debt.
3. Stagflation is accompanied by high unemployment.

Which of the above statements is / are correct?
Answer: 1, 2 and 3
Notes: All three statements are correct: Inflation erodes the purchasing power of money. Deflation causes the real value of debt to rise since money gains value. Stagflation is an unusual economic state with high inflation and unemployment occurring together, against normal economic theory expectations. Thus, statements 1, 2 and 3 are accurate.