Real money balances refer to the amounts of nominal money that individuals hold, adjusted for inflation. This is done by dividing nominal money by the average price level, which results in a measure of purchasing power. Real money balances are important because they affect spending decisions and the demand for goods and services in the economy. None of the other options accurately describe real money balances.

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Real Money Balances

Question 76

Multiple Choice

Real money balances

A) refer to the amounts of nominal money that individuals hold.
B) are computed by deflating nominal money assets by the average price level.
C) refer to the amounts of American money that an individual holds relative to gold or foreign currencies.
D) are measured by currency holdings rather than holdings in checking accounts.
E) are identical to nominal money balances in the long run.

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