Final answer:
If the purchasing power of the dollar is falling, it means that b. the price index is rising, as it indicates that the level of prices for goods and services is going up and each dollar buys less.
Step-by-step explanation:
When inflation occurs, it means the overall level of prices for goods and services is going up, leading to a reduction in the purchasing power of the dollar. As items become more expensive, each dollar you have buys a smaller percentage of a product or good. The price index, such as the Consumer Price Index (CPI), measures this change in the level of prices in the economy over time. If the price index is increasing, it indicates that the cost of purchasing a fixed basket of goods and services is rising, which directly correlates to a decrease in purchasing power.
The impact of changing interest rates is separate from the direct relationship between purchasing power and the price index. Though interest rates can influence inflation and thereby purchasing power, the question provided specifically asks about the immediate consequence of a fall in purchasing power, which is most directly seen as a rise in the price index.