When the average price level of a country rises, which of the following would NOT cause a drop in the total amount of the country's goods and services that would be purchased?
A) The money that people hold will have less purchasing power than it had before the price level changed.
B) A higher price level causes interest rates to rise, which causes purchases to fall for the kinds of items that typically are bought on credit.
C) When the price level rises in country A but not in country B, citizens of country B will be less likely to import products from country A, leading to a reduction in country A's net exports.
D) The higher price level leads to higher wages, which raise the costs of production for firms.

Question

Quizplus · Accepted Answer

The correct answer is D because higher wages leading to higher costs of production for firms does not directly affect the total amount of goods and services purchased by consumers. Instead, it affects the supply side by potentially reducing the quantity of goods and services produced due to higher production costs. Choices A, B, and C directly relate to factors that would decrease consumer purchasing power or demand, leading to a drop in the total amount of goods and services purchased.

When the Average Price Level of a Country Rises, Which