The change in the quantity of goods and services demanded in the U.S. is based on the logic that as the price level rises,
A) real wealth falls, interest rates rise, and net exports fall.
B) real wealth falls, interest rates rise, and net exports rise.
C) real wealth rises, interest rates fall, and net exports fall.
D) real wealth rises, interest rates fall, and net exports rise.

Question

Quizplus · Accepted Answer

As the price level rises, real wealth falls because the purchasing power of money decreases, leading to lower levels of consumption and investment. This decrease in demand can cause interest rates to rise, as borrowers are willing to pay higher interest rates to obtain funds. Additionally, as U.S. goods become more expensive relative to foreign goods, net exports (exports minus imports) fall, as foreign consumers are less likely to purchase U.S. goods.

The Change in the Quantity of Goods and Services Demanded