Other things being equal,an exogenous fall in the domestic price level leads to a rise in private-sector wealth.As a result,there is
A)an increase in the average propensity to save.
B)an increase in autonomous desired consumption.
C)a downward shift in the AE curve.
D)a downward shift in net exports.
E)domestic goods appearing less attractive to foreigners.

Question

Quizplus · Accepted Answer

An exogenous fall in the domestic price level increases private-sector wealth, which typically leads to an increase in autonomous desired consumption as people feel wealthier and are more inclined to spend rather than save. This is known as the wealth effect.

Other Things Being Equal,an Exogenous Fall in the Domestic Price