-In the above figure, the economy initially is at point B. Then price level rises by 10. The wealth effect will help
A) move the economy to point A.
B) move the economy to point C.
C) move the economy to point D.
D) keep the economy to point B.

Question

-In the above figure, the economy initially is at point B. Then price level rises by 10. The wealth effect will help
A) move the economy to point A. 
B) move the economy to point C. 
C) move the economy to point D. 
D) keep the economy to point B.

Quizplus · Accepted Answer

The wealth effect refers to the change in consumer spending that results from a change in the value of wealth. When the price level rises, the real value of money decreases, leading to a decrease in consumer spending. This would shift the economy from point B to point C, where the aggregate demand is lower due to reduced purchasing power.

-In the Above Figure, the Economy Initially Is at Point