According to the ______ effect, as the price level declines, the purchasing power of financial assets increases and households purchase a greater quantity of goods and services.
A) foreign trade
B) multiplier
C) interest rate
D) real wealth

Question

Quizplus · Accepted Answer

The correct answer is the real wealth effect. This economic principle suggests that when the price level decreases, the real value or purchasing power of money and financial assets increases, leading households to increase their consumption of goods and services because they feel wealthier.

According to the ______ Effect, as the Price Level Declines