Suppose There Is an Exogenous Increase in the Domestic Price

question 131

Multiple Choice

Suppose there is an exogenous increase in the domestic price level.Which of the individuals listed below would experience an increase in wealth?

• A)a person with a 25-year home mortgage
• B)a person with cash under the mattress
• C)a person with deposits in a bank savings account
• D)a person with a government bond that promises to pay the holder $1000,5 years hence
• E)a person with a corporate bond that promises to repay the face value of the bond in the future

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Definitions:

Real Exchange Rate

The rate at which two currencies can be exchanged after adjusting for inflation differentials, reflecting the purchasing power of one currency in terms of goods and services.

Domestic Goods

Products that are manufactured within a country's borders, as opposed to goods imported from other countries.

Foreign Goods

Products that are produced in one country and then imported and sold in another country.

Nominal Exchange Rate

The rate at which one country's currency can be exchanged for another country's currency, without adjusting for inflation differences between the two countries.