Ceteris paribus,based on the real balances effect,if the price level falls:
A) Wealth decreases.
B) Purchasing power increases.
C) Real income decreases.
D) Business profits increase.

Question

Quizplus · Accepted Answer

According to the real balances effect, a fall in the price level increases the purchasing power of money. This means that individuals can afford to purchase more goods and services with the same amount of money, thus their real income or purchasing power increases. Wealth may not necessarily decrease since individuals may be able to purchase more goods and services with their same wealth. Business profits may or may not increase, as it depends on the impact of the fall in price level on their costs and revenues.

Ceteris Paribus,based on the Real Balances Effect,if the Price Level