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

Question

Quizplus · Accepted Answer

A fall in the domestic price level increases the purchasing power of money, leading to a rise in private-sector wealth, which in turn may increase desired consumption. Thus, there will be an increase in desired consumption.

Other Things Being Equal, a Fall in the Domestic Price