Which of the following best describes the effects of an increase in the price level?
A)Dollars are worth more, so people spend more.
B)Dollars are worth more, so people spend less.
C)Dollars are worth less, so people spend more.
D)Dollars are worth less, so people spend less.

Question

Quizplus · Accepted Answer

An increase in price level leads to a decrease in the purchasing power of dollars. This, in turn, leads to a decrease in consumer spending as people can afford to buy fewer goods and services. Thus, the best choice is D, as it describes the decreased spending that results from the decreased value of dollars.

Which of the Following Best Describes the Effects of an Increase