points out that a rise in the price level decreases the value of real wealth, which then decreases consumption.
A) The interest rate effect
B) The wealth effect
C) The open- economy effect
D) The substitution effect

Question

Quizplus · Accepted Answer

The wealth effect states that a rise in the price level decreases the value of real wealth, which then decreases consumption. This is because individuals feel less wealthy as the prices of goods and services increase, so they are less likely to spend money on consumption.

Points Out That a Rise in the Price Level Decreases