Identify the correct statement.
A)If the price level increases,we feel poorer and buy less.
B)If the price level increases,we feel richer and buy more.
C)If domestic prices increase,we substitute domestic goods for imported ones.
D)An increase in the price of a particular good leads to a substitution.
E)A decrease in the price of a particular good is like an increase in income and therefore we buy more.

Question

Quizplus · Accepted Answer

With an increase in the price level, the purchasing power of individuals decreases, which makes them feel poorer. As a result, they tend to buy less. Option B is incorrect because an increase in the price level does not make people feel richer. Option C is incorrect because an increase in domestic prices does not necessarily lead to a substitution of domestic goods for imported ones. Option D is only applicable to a particular good and not the general price level. Option E is incorrect because a decrease in the price of a particular good may not necessarily lead to an increase in demand for it or overall expenditure on it.

Identify the Correct Statement