Negative Real Rate of Return on Physical Currency

An individual named Alex decides to save $1,000 for one year by keeping it as physical cash in a safe at home. A second individual, Ben, also saves $1,000 for one year, but he purchases a financial instrument that yields a 5% return. Over the course of that year, the average price of goods and services in the economy rises by 3%. Which of the following statements provides the most accurate evaluation of whose savings best served as a store of value?

Comparing Assets as a Store of Value

Investment Strategy Evaluation

An investor is considering different ways to hold their wealth for one year. During this year, the average price of goods and services in the economy increases by 3%. Match each asset with the description that best reflects its performance as a store of value over this period.

An asset that yields a positive rate of return is always an effective store of value because it increases the holder's wealth.

Evaluating 'Cash is King'

An investor purchases a financial asset that yields a 4% annual rate of return. For the investor's wealth to grow in terms of the actual quantity of goods and services it can purchase, the annual rate of increase in the general price level must be less than ____%.

An investor wants to determine if a particular financial instrument was an effective store of value over the past year. Arrange the following steps in the correct logical order to perform this evaluation.

Long-Term Wealth Preservation Strategy

An economic analyst states, 'In an economy experiencing a high and unpredictable rate of increase in the general price level, financial instruments that offer a fixed percentage return become less reliable for preserving wealth over time.' Which of the following statements best explains the economic reasoning behind this claim?