Other things equal, which of the following is true?
A) A reduction in prices will increase the real wealth of those holding a fixed quantity of money.
B) A reduction in prices will lead to a decline in net exports.
C) A reduction in prices will increase the scarcity of money, raise the real interest rate, and, thereby, encourage investment and consumption.
D) A reduction in prices will increase profit margins and, thereby, stimulate additional investment.

Question

Quizplus · Accepted Answer

A reduction in prices will increase the purchasing power of money, which effectively increases the real wealth of those holding a fixed quantity of money. This is because the same amount of money can now buy more goods and services. The other options are not necessarily true, as a reduction in prices can have various effects on the economy, depending on the context and other factors.

Other Things Equal, Which of the Following Is True