Assume you have $5,000 in a savings account at the beginning of the year and the price level is equal to 100.If the price level is equal to 125 at the end of the year,the real value of your savings is closest to
A)$4,000.
B)$4,875.
C)$5,125.
D)$6,250.

Question

Quizplus · Accepted Answer

The real value of the savings can be calculated by adjusting the nominal amount ($5,000) for the increase in the price level from 100 to 125. This is done by dividing the nominal amount by the new price level (125) and then multiplying by the base price level (100). Thus, $5,000 * (100 / 125) = $4,000. This shows the purchasing power of the savings has decreased to $4,000 due to inflation.

Assume You Have $5,000 in a Savings Account at the Beginning