When the price level changes for a given supply of nominal money balances, the supply of real balances changes. This effect is called the
A)wealth effect.
B)constant nominal income effect.
C)substitution of foreign goods effect.
D)investment effect.

Question

Quizplus · Accepted Answer

The wealth effect describes how a change in the price level affects consumer wealth and spending. When the price level changes, the real value or purchasing power of money balances changes, which in turn affects consumption and demand.

When the Price Level Changes for a Given Supply of Nominal