A rise in the price level changes aggregate demand because
A) firms increase their investment when prices are higher.
B) the real value of people's wealth varies directly with the price level and so does their spending.
C) the real value of people's wealth decreases and so they decrease their consumption.
D) the more money people have, the more it is worth and hence the more goods and services they demand.
C
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The slope of the line shown in the above figure is
A) 2. B) 0.75. C) 0.25. D) 1 1/3.
Long-run equilibrium in the goods and services market requires that decision makers who agreed to long-term contracts must have
a. incorrectly anticipated the level of prices when they made the agreements. b. correctly anticipated the level of prices when they made the agreements. c. correctly anticipated the natural rate of unemployment when they made the agreements. d. correctly anticipated actual GDP when they made the agreements.
When the government runs a deficit, it will:
A. raise taxes immediately. B. buy bonds to finance the deficit. C. sell bonds to finance the deficit. D. reduce the money supply to finance the deficit.
The main idea behind using fiscal policy to combat a recession is:
A. the government will make up for the decreased saving in the economy, preventing a downward spiral. B. the government will supplement the increased saving in the economy, contributing to an upward spiral. C. the government will make up for the decreased spending in the economy, preventing a downward spiral. D. the government will supplement the increased spending in the economy, contributing to an upward spiral.