When the general price level in our economy increases, the following effects occur except : A. The purchasing power of people's savings will increase B. The interest rate will also tend to increase C. Foreign buyers will buy less of our output, and we tend to import more D. Our net exports will tend to decrease

Question

Memphis Jacobson

Business

2 January, 18:47

When the general price level in our economy increases, the following effects occur except : A. The purchasing power of people's savings will increase B. The interest rate will also tend to increase C. Foreign buyers will buy less of our output, and we tend to import more D. Our net exports will tend to decrease

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Answers (1)

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Coleman Horn · Answer 1

A. The purchasing power of people's savings will increase

Explanation:

When there's a rise in general price levels, the purchasing power of money falls. This is because when there's a rise in general price levels, the price of good and services rise, consumers would need more money to buy goods and services. The value of money saved will fall so would it's purchasing power. Money is a poor store of value in a period of rising price.

Due to The rise in general price levels, consumers would demand more money to buy the same basket of goods they used to consume before the rise in price, therefore, the demand for money would exceed it's supply and as a result, interest rates would rise.

When prices are rising, goods and services become more expensive to foreigners and foreign goods and services become cheaper. Therfore, exports decrease and import increases.

Inflation occurs when there's a persistent rise in general price levels.