As the price level falls?

Question

a. the purchasing power of cash holdings rises.

b. the purchasing power of cash holdings falls.

c. the purchasing power of cash holdings remains constant.

d. cash holdings turn into dollar-denominated assets.

e. none of the above

Answer 1

a.

price level falling is a deflation, the opposite of inflation so the effects of inflation in the opposing manner applies ie. during inflation, the purchasing power decreases hence in deflation the purchasing power increases. However, in the long run, a deflation is not good.

Answer 2

a. pp of cash rises.

If prices are falling, goods are cheaper and that same dollar can now buy more.  Therefore, pp rises.

Answer 3

b.