If you have $1,000 of money in the bank and the price level rises 5 percent,your
A) money is worth more in terms of what it can purchase.
B) money is worth less in terms of what it can purchase.
C) money is worth the same in terms of what it can purchase.
D) purchasing power has risen.

Question

Quizplus · Accepted Answer

With a 5 percent rise in price level, the value of money in terms of what it can buy decreases. This means that the purchasing power of your money decreases and it can buy fewer goods/services than before. Therefore, choice B is correct.

If You Have $1,000 of Money in the Bank and the Price