Why does an increase in the price level result in a decrease in the aggregate quantity of goods and services demanded?
A) because as wealth rises, interest rates rise, and the dollar appreciates
B) because as wealth rises, interest rates fall, and the dollar depreciates
C) because as wealth falls, interest rates rise, and the dollar appreciates
D) because as wealth falls, interest rates fall, and the dollar depreciates

Question

Quizplus · Accepted Answer

An increase in the price level effectively reduces the real value or purchasing power of wealth, leading to a decrease in consumption and investment. This can cause interest rates to rise as people save less and borrow more, and the higher interest rates can lead to an appreciation of the dollar, making exports more expensive and imports cheaper, further reducing the aggregate quantity of goods and services demanded domestically.

Why Does an Increase in the Price Level Result in a Decrease