Which of the following is incorrect?
A)As the Canadian price level rises, Canadian goods become relatively more expensive so that its exports fall and its imports rise.
B)As the price level falls, the demand for money declines, the interest rate declines, and interest rate-sensitive spending increases.
C)When the price level increases, real balances increase, businesses and households find themselves wealthier and therefore increase their spending.
D)Given aggregate demand, an increase in aggregate supply increases real output and, assuming downward flexible prices, reduces the price level.

Question

Quizplus · Accepted Answer

When the price level increases, real balances decrease, in turn causing a decrease in spending as households and businesses are not as wealthy. Therefore, C is incorrect as it says that an increase in the price level leads to an increase in spending.

Which of the Following Is Incorrect