Asked by Zahra Al-Radwan on Apr 27, 2024
Verified
If the price level in an economy increases,other things constant,consumption spending is likely to _____.
A) increase because real income increases
B) decrease because real income increases
C) increase because the real value of wealth increases
D) decrease because the real value of wealth decreases
E) increase because nominal income increases
Price Level
The price level is an aggregate measure that reflects the average of current prices across the entire spectrum of goods and services produced in the economy.
Consumption Spending
Consumption spending refers to the total amount of money spent by households and individuals on goods and services for personal use.
- Recognize how changes in the price level influence consumption, exports, and the aggregate demand curve.
Verified Answer
NQ
Nguy?n QuangMay 01, 2024
Final Answer :
D
Explanation :
If the price level in an economy increases, the purchasing power of money decreases. This means that the real value of wealth decreases. As a result, consumers will have to spend more money to maintain their standard of living, leading to a decrease in consumption spending.
Learning Objectives
- Recognize how changes in the price level influence consumption, exports, and the aggregate demand curve.