The Canadian price level rises. What is the effect on the quantity of real GDP demanded or aggregate demand in Canada?
A)The quantity of Canadian real GDP demanded increases.
B)The quantity of Canadian real GDP demanded decreases.
C)Canadian aggregate demand increases.
D)Canadian aggregate demand decreases.
E)There is no change to either the quantity of real GDP demanded or to aggregate demand.

Question

Quizplus · Accepted Answer

When the price level rises, the purchasing power of money decreases, leading to a decrease in the quantity of real GDP demanded. This is due to the wealth effect, interest rate effect, and exchange rate effect.

The Canadian Price Level Rises