Which of the following examples does not account for the substitution effect of a rise in the price level?
A) People cannot afford to buy so much at higher prices.
B) Exports become less competitive and thus fewer are sold.
C) Higher wages and prices cause a higher demand for money. With a given supply of money in the economy, this will drive up interest rates and encourage people to spend less and save more. This will have the effect of reducing real aggregate demand.
D) Higher domestic prices lead to people purchasing fewer domestic goods and more imports.
Correct Answer:
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