According to the wealth effect, when prices decrease, the purchasing power of assets _____ and consumer spending _____.
A) decreases; decreases
B) increases; decreases
C) decreases; increases
D) increases; increases

Question

Quizplus · Accepted Answer

According to the wealth effect, when prices decrease, the purchasing power of assets increases, which leads to an increase in consumer spending. This is because consumers feel wealthier and more able to afford goods and services, which stimulates demand and encourages spending. As a result, the answer is D, which indicates that both the purchasing power of assets and consumer spending increase when prices decrease.

According to the Wealth Effect, When Prices Decrease, the Purchasing