Question

An increase in the price level reduces the real value of financial assets with fixed money values, and, as a result, the holders of these assets decrease their spending.
(A) True
(B) False

Answer 1

Answer:

(B) False

Explanation:

In fact, if assets have a fixed monetary value, increasing the overall price level (inflation) will reduce the real value of these assets. Thus, the purchasing power of the holders of these assets will decrease. However, it is not correct to say that the holders of these titles have reduced their spending, since what determines spending is individual perceptions and needs. Some of the holders may decrease their spending in the face of an inflationary process, but others may maintain or even increase their spending.