A negative relationship exists between the price level and which components of GDP? I. Consumption
II) Investment
III) Government spending
IV) Net exports
A) I, II, and III only
B) II, III, and IV
C) I, II, III, and IV
D) I, II, and IV only

Question

Quizplus · Accepted Answer

A negative relationship exists between the price level and consumption, investment, and net exports. When the price level rises, the purchasing power of income falls, leading to a decrease in consumption and investment. Higher domestic prices also make a country's exports less competitive abroad, reducing net exports. Government spending is typically not directly affected by changes in the price level in the short run, as it is determined by fiscal policy decisions.

A Negative Relationship Exists Between the Price Level and Which