A sudden decrease in the U.S. price level
A) makes creditors in dollars better off.
B) makes creditors in dollars worse off.
C) does not affect creditors in dollars.
D) makes creditors in DM better off.
E) makes those with dollar debts better off.

Question

Quizplus · Accepted Answer

A sudden decrease in the U.S. price level increases the real value of money, which means that the purchasing power of the money that creditors receive in repayment is higher. Therefore, creditors in dollars are better off because the dollars they are paid back with can buy more goods and services than before the decrease in the price level.

A Sudden Decrease in the U.S. Price Level