An increase in the general level of prices will tend to cause,other things the same ________.
A)an increase in the real value of assets
B)an increase in the real value of liabilities
C)no change in the real value of liabilities
D)a decrease in the real value of liabilities

Question

Quizplus · Accepted Answer

An increase in the general level of prices will cause a decrease in the purchasing power of money. This means that the real value of liabilities (debts) will decrease, as the debts will become less valuable in terms of being able to purchase goods and services. Therefore, option D is the correct answer. Option A is incorrect because an increase in the general level of prices will not necessarily increase the real value of assets, as the value of the assets may not have changed. Option B is incorrect because an increase in the general level of prices will not increase the real value of liabilities, but will decrease it. Option C is also incorrect as it states that there will be no change in the real value of liabilities, which is not correct.

An Increase in the General Level of Prices Will Tend