The idea that a decrease in the price level raises the real value of households' money holdings,which increases consumer spending and the quantity of goods and services demanded is known as
A)the interest-rate effect.
B)the exchange-rate effect.
C)the theory of liquidity preference.
D)the wealth effect.

Question

Quizplus · Accepted Answer

The idea described in the question refers to the wealth effect, which suggests that a decrease in the price level increases the real value of households' money holdings, making them feel wealthier and leading to higher consumer spending and demand for goods and services.

The Idea That a Decrease in the Price Level Raises