An individual holds $10,000 in a non-interest-earning checking account, and the overall price level rises significantly. Other things being constant, we would expect
A) the individual's real wealth to decrease and consumption to decline.
B) the individual's stock of real wealth to decrease but real national income to increase.
C) no change in the individual's real wealth but a decline in real national product.
D) the individual's wealth to increase.

Question

Quizplus · Accepted Answer

Inflation reduces the purchasing power of money, so the individual's real wealth (measured in terms of what they can actually buy with their money) will decrease. This may lead to a decline in consumption, as the individual will have less purchasing power.

An Individual Holds $10,000 in a Non-Interest-Earning Checking Account, and the Overall