Asked by Kassi Stolz on Jul 15, 2024
Verified
If the price level in an economy decreases,other things constant,people consume _____.
A) more because nominal income falls
B) less because nominal income rises
C) more because the real value of their wealth increases
D) less because real income decreases
E) less because the real value of their wealth decreases
Real Value
Real value refers to the worth of a good or service taking into account inflation, providing a more accurate measure over time.
Nominal Income
The amount of money earned in current dollars, without adjustment for inflation or purchasing power.
- Understand the consequences of price level fluctuations on aggregate demand, aggregate supply, and aggregate expenditure.
Verified Answer
BP
Birkamal PannuJul 17, 2024
Final Answer :
C
Explanation :
A decrease in the price level means that each unit of currency can purchase more goods and services, leading to an increase in the real value of people's wealth. As a result, people are likely to consume more since they feel wealthier and can afford more with their existing income.
Learning Objectives
- Understand the consequences of price level fluctuations on aggregate demand, aggregate supply, and aggregate expenditure.