According to the U.S. Secret Service, approximately $2.6 billion of U.S. paper currency in circulation is counterfeit. As long as counterfeit U.S. currency remains undetected and in circulation, an increase in the U.S. inflation rate would essentially
A) decrease the real value of the counterfeit currency.
B) increase the real value of the counterfeit currency.
C) decrease the nominal value of the counterfeit currency.
D) increase the nominal value of the counterfeit currency.

Question

Quizplus · Accepted Answer

An increase in the U.S. inflation rate would decrease the real value of both genuine and counterfeit currency. However, since counterfeit currency has no real value to begin with, it would be affected more severely than genuine currency. Therefore, the increase in the U.S. inflation rate would decrease the real value of the counterfeit currency.