If the price level rises, then the wealth effect leads to
A)an increase in real wealth, an increase in current consumption expenditure, and an increase in saving.
B)an increase in real wealth, an increase in current consumption expenditure, and a decrease in saving.
C)a decrease in real wealth, an increase in current consumption expenditure, and an increase in saving.
D)a decrease in real wealth, an increase in current consumption expenditure, and a decrease in saving.
E)a decrease in real wealth, a decrease in current consumption expenditure, and an increase in saving.

Question

Quizplus · Accepted Answer

When the price level rises, real wealth decreases, leading to a decrease in current consumption expenditure and potentially an increase in saving as people try to rebuild their wealth.

If the Price Level Rises, Then the Wealth Effect Leads