Other things being equal, an exogenous rise in the domestic price level will
A)cause net exports to rise.
B)decrease desired real expenditure because it will affect the real value of wealth.
C)have no effect on the level of desired real expenditure.
D)increase the level of desired real expenditure.
E)decrease desired real expenditure only if it is accompanied by a change in the current income of households.

Question

Quizplus · Accepted Answer

An exogenous rise in the domestic price level will affect the real value of wealth, causing a decrease in desired real expenditure. This is because as the price level increases, the purchasing power of money decreases, meaning individuals will have to spend more money to maintain the same level of consumption. This decrease in desired real expenditure will not cause net exports to rise, nor will it necessarily increase or decrease the level of desired real expenditure, as these factors are not directly impacted by changes in the price level.

Other Things Being Equal, an Exogenous Rise in the Domestic