A rise in the price level changes aggregate demand because
A) the real value of peopleʹs wealth varies directly with the price level and so does their spending.
B) the real value of peopleʹs wealth decreases and so they decrease their consumption.
C) the more money people have, the more it is worth and hence the more goods and services they demand.
D) firms increase their investment when prices are higher.

Question

Quizplus · Accepted Answer

A rise in the price level decreases the real value of people's wealth, leading them to reduce their consumption, which in turn decreases aggregate demand.

A Rise in the Price Level Changes Aggregate Demand Because