When the general price level falls
A) consumption rises as a result of the real wealth effect.
B) consumption decreases as a result of the multiplier effect.
C) investment falls as a result of the real wealth effect.
D) investment falls as a result of the multiplier effect.

Question

Quizplus · Accepted Answer

When the general price level falls, the purchasing power of consumers increases, leading to a decrease in the cost of living. This increase in purchasing power leads to an increase in consumption, as consumers feel wealthier and are more likely to spend. This effect is known as the real wealth effect.

When the General Price Level Falls