We observe a decrease in the price level and a decrease in real GDP. Which of the following is a possible explanation?
A)a decrease in the quantity of money
B)an increase in expected future income
C)an increase in factor prices
D)an increase in the quantity of capital
E)an increase in expected future profits

Question

Quizplus · Accepted Answer

A decrease in the quantity of money would lead to a decrease in spending, as there is less money available to purchase goods and services. This decrease in spending then leads to a decrease in real GDP. Additionally, a decrease in the quantity of money would also lead to lower prices, as there is less money available to chase the same amount of goods and services.

We Observe a Decrease in the Price Level and a Decrease