According to the wealth effect, if the average price level rises, the value of consumers'
A) real wealth, nominal wealth, and consumption spending fall.
B) nominal wealth and consumption spending fall.
C) real wealth and consumption spending fall.
D) nominal wealth and saving fall.

Question

Quizplus · Accepted Answer

The wealth effect suggests that an increase in price levels reduces the real value of consumers' wealth, since their purchasing power declines. As a result, consumption spending falls, as individuals have less money to spend on goods and services. However, nominal wealth (the total dollar value of assets) may not necessarily decline, as it is not adjusted for inflation.

According to the Wealth Effect, If the Average Price Level