Question

Imagine that the chairperson of the Federal Reserve unexpectedly announces that, as of the following day, all currency in circulation in the United States would be worth twice its face value. For example, a $10 bill would be worth $20; a $100 bill would be worth $200, etc. Furthermore, the balances in all checking and savings accounts will double their values as well. So, if you have $500 in your checking account, as of the following day, your balance would be $1,000, etc.

Will you actually be twice better off on the day the announcement takes effect? Why or why not? Illustrate your answer with the help of either an equation or a graph.

Answer 1