Answer to Question #210625 in Economics of Enterprise for akky

Question

Money is an imperfect store of value when,

Select one:

a. businesses are failing due to bankruptcy.

b. the unemployment rate is high.

c. gold prices are falling.

d. the rate of inflation is high.

please answer correctly with an explanation. Thank You;

Answer 1

The correct answer is d. the rate of inflation is high.

Money tends to lose its value when the rate of inflation is high since inflation rates reduces people's purchasing power. When inflation kicks in, people will be able to buy less goods and services with the same amount of money since inflation increases the cost of goods and services.

For example if you have 500 which you can use to purchase 5 breads at 100, then inflation of 20 percent kicks in and the bread now costs 120, with the same amount of money you will now be able to purchase only 4 breads, which means that the rate of inflation has reduced the value of your money.