People will spend more if the price level
A) rises because rising prices increase the real value of a dollar.
B) rises because rising prices decrease the real value of a dollar.
C) falls because falling prices increase the real value of a dollar.
D) falls because falling prices decrease the real value of a dollar.

Question

Quizplus · Accepted Answer

According to the principle of real income, people will spend more when the price level falls because falling prices increase the real value of a dollar. When prices are lower, people can buy more goods and services with the same amount of money. This increases their purchasing power and motivates them to spend more money.

People Will Spend More If the Price Level