Identify the correct statement.
A) If the price level increases, we feel poorer and buy less.
B) If the price level increases, we feel richer and buy more.
C) If domestic prices increase, we substitute imported goods with domestic goods.
D) An increase in the price of a particular good does not affect the price level in an economy.
E) A decrease in the price of a particular good is like an increase in income, and therefore, we buy more of the good.

Question

Quizplus · Accepted Answer

When the price level increases, the purchasing power of money decreases. This means that we can buy less with the same amount of money. Therefore, we feel poorer and buy less.

Identify the Correct Statement