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Which income arrangement best protects individuals from inflationary erosion?

medium Q5 of 15
Economic Awareness - Sectors of Indian Economy
Which income arrangement best protects individuals from inflationary erosion?
AFixed nominal salary
BIncome indexed to inflation
CPension without revision
DInterest-based fixed deposits
Step-by-Step Solution

  1. Step 1: Understand income indexation

    Indexed income adjusts automatically with changes in the price level.

  2. Step 2: Analyze protection mechanism

    This adjustment preserves real purchasing power despite inflation.

  3. Final Answer:

    Income indexed to inflation → Option B

  4. Quick Check:

    Indexation = inflation protection ✅
Quick Trick: Indexation locks real income
Common Mistakes:
  • Assuming fixed interest protects against inflation
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