An individual holds $10,000 in a checking account and the price level rises significantly. Hence
A) there is no change in the individual's real wealth.
B) the individual's wealth increases.
C) the individual's real wealth decreases but real national wealth increases.
D) the individual's real wealth and consumption expenditure decrease.

Question

Quizplus · Accepted Answer

When the price level rises, the purchasing power of the individual's $10,000 decreases, meaning that their real wealth decreases. This decrease in real wealth can lead to a decrease in consumption expenditure as they may not be able to afford the same amount of goods and services as before. However, there is no mention of real national wealth changing and therefore option C can be ruled out. Option A is also not correct as there is a decrease in the individual's real wealth. Option B is incorrect as there is no indication that the individual's wealth has increased in real terms.

An Individual Holds $10,000 in a Checking Account and the Price