If You Have $5,000 in Wealth and the Price Level

question 178

Multiple Choice

If you have $5,000 in wealth and the price level decreases by 20 percent, then

• A) the $5,000 will buy fewer goods and services.
• B) the $5,000 will buy more goods and services.
• C) the real value of the $5,000 decreases.
• D) the real value of the $5,000 remains constant.

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Definitions:

Homemade Leverage

The use of personal borrowing to change the overall amount of financial leverage to which an individual or household is exposed.

Financial Leverage

The use of borrowed funds (debt) to amplify potential returns on investment, which could also increase the potential for loss.

Indirect Bankruptcy Cost

Expenses that a company incurs when it approaches bankruptcy that do not include actual legal and other direct costs, such as lost sales, damage to reputation, and management distraction.

Bankruptcy Court

A specialized federal court dealing with cases involving individuals or businesses that cannot repay their outstanding debts.