An exogenous fall in the domestic price level causes an increase in wealth and
A)a rise in desired consumption.
B)a downward shift of the net export function.
C)a fall in government purchases.
D)a fall in desired investment.
E)a downward shift in the AE curve.

Question

Quizplus · Accepted Answer

An exogenous fall in the price level leads to an increase in real wealth, making people feel richer and increasing their desired consumption. Therefore, choice A is the correct answer. A fall in the price level is also likely to enhance net exports (as exports become cheaper), so choice B is incorrect. Choices C, D, and E are also incorrect, as there is no direct relationship between changes in the price level and government purchases, investment, or the aggregate expenditure (AE) curve.

An Exogenous Fall in the Domestic Price Level Causes an Increase