When the inflation rate decreases, PAE ______, which in turn causes Y to ______ because of ______.
A)rises; rise; the income-expenditure multiplier
B)rises; fall; the income-expenditure multiplier
C)falls; rise; the wealth effect
D)falls; fall; the wealth effect

Question

Quizplus · Accepted Answer

When the inflation rate decreases, the purchasing power of money increases, which leads to an increase in aggregate expenditure (PAE). This increase in PAE, in turn, causes real output (Y) to rise because of the income-expenditure multiplier.

When the Inflation Rate Decreases, PAE ______, Which in Turn