Which of the following is an example of the income effect during a period of inflation?
A) You buy lots of peanut butter,which decreases in price while the price level rises
B) You own stock that increases in value more rapidly than the price level does
C) You own a house,and its value rises at the same rate as the price level does
D) Your income is fixed and does not increase even though the price level is rising

Question

Quizplus · Accepted Answer

The income effect during a period of inflation refers to the decrease in purchasing power of a fixed income. This means that the individual's real income decreases as prices rise, leading to a decrease in the quantity and quality of goods and services that can be purchased. Option D is the only choice that reflects this income effect by stating that the income is fixed and does not increase even though the price level is rising. Options A, B, and C do not reflect the income effect during a period of inflation.

Which of the Following Is an Example of the Income