In general,changes in the price level will change:
A)the real value of people's wealth and income.
B)the nominal value of cash balances.
C)the real value of consumption goods only.
D)the nominal value of consumption goods and the real value of durable goods.

Question

Quizplus · Accepted Answer

Changes in the price level will affect the purchasing power of people's wealth and income in real terms, as inflation erodes the value of money. This means that the same amount of money will be able to buy fewer goods and services, reducing people's purchasing power. The nominal value of cash balances (B) may also be affected by changes in the price level, but this is a much more limited effect than the impact on real wealth and income. The real value of consumption goods (C) may also change, but this is a narrower impact than on people's overall wealth and income. Finally, the nominal value of consumption goods and the real value of durable goods (D) are not directly linked to changes in the price level in the same way as people's wealth and purchasing power.

In General,changes in the Price Level Will Change