Choose the one alternative that best completes the statement or answers the question
1) Your roommate argues that he can think of no better situation than living in a deflationary
economy, as prices of goods and services would continuously fall.
You disagree and argue that
during a deflation people can be made worse off because
A) the value of real interest rate will drop below the nominal interest rate.
B) borrowers will have to pay increasing amounts in real terms over time.
C) the purchasing power of the currency would decrease.
D) the purchasing power of peoples' incomes would increase.
2) Which of the following functions of money would be most violated if inflation were high?
A) medium of exchange
B) certificate of gold
C) unit of account
D) store of value
3) You earn $500 a month, currently have $200 in currency, $100 in your checking account, $2,000 in
your savings accounts, $3,000 worth of illiquid assets and $1,000 of debt.
$300, annual income