An increase in the price level will:
A)make the consumption function flatter.
B)make the consumption function steeper.
C)increase consumption because wages will increase.
D)decrease consumption because falling interest rates make it cheaper to borrow.
E)decrease consumption because the value of net wealth will decrease.

Question

Quizplus · Accepted Answer

An increase in the price level will decrease the value of net wealth, as the purchasing power of money decreases. This will lead to a decrease in consumption, as individuals will have less wealth to spend on goods and services.

An Increase in the Price Level Will