An Individual Holds $10 000 in an Interest-Earning Checking Account,and

question 73

Multiple Choice

An individual holds $10 000 in an interest-earning checking account,and the overall price level rises significantly.Other things constant,we would expect

• A)the individual's real wealth to decrease and consumption to diminish.
• 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)we cannot be sure since we do not know the magnitude of the interest earned relative to the increase in price level.

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Definitions:

Capital

The financial assets or resources that individuals or companies use to fund their operations and invest in their businesses.

Financial Situation

An individual's or organization's current status in terms of income, expenses, assets, and liabilities, impacting their ability to generate cash flow and meet financial obligations.

Net Present Value

A financial metric that calculates the value of a series of cash flows by discounting them to their present value using a specific rate.

Discount Rates

The interest rate that the Federal Reserve or a central bank charges depository institutions on loans they receive, or more broadly, the interest rate used to discount future cash flows to their present value.