What occurs when the price level increases?
A) People demand a smaller aggregate quantity of goods and services.
B) Consumers feel wealthier.
C) The same real value of assets is held by the public, regardless of the change in the price level.
D) People want to spend more.

Question

Quizplus · Accepted Answer

When the price level increases, the purchasing power of money decreases, leading to a decrease in the demand for goods and services because people can afford to buy less with a given amount of money. This is known as the wealth effect. As a result, aggregate demand decreases, and the economy moves down along the demand curve.

What Occurs When the Price Level Increases