Which of the following is an example of the wealth effect during a period of inflation?
A) A firm receives a fixed price for the services it sells while the price level is rising
B) You hold money in a savings account that earns 5 percent interest while the price level doubles
C) Your income stays constant while the price level doubles
D) You pay for utilities that are becoming more expensive as the price level is rising

Question

Quizplus · Accepted Answer

The wealth effect refers to the change in consumer spending that results from a change in perceived wealth. In this case, holding money in a savings account that earns 5 percent interest while the price level doubles results in a decrease in real wealth, as the purchasing power of the savings decreases significantly due to inflation.

Which of the Following Is an Example of the Wealth