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

Question

Quizplus · Accepted Answer

When the price level rises, the real value of people's wealth decreases because the purchasing power of their money falls. This leads to a decrease in consumption spending, which shifts the aggregate demand curve to the left.

A Rise in the Price Level Changes Aggregate Demand Because