Other things being equal,an exogenous rise in the domestic price level will
A)have no effect on the level of desired real expenditure.
B)increase the level of desired real expenditure.
C)decrease desired real expenditure only if it is accompanied by a change in the current income of households.
D)decrease desired real expenditure because it will affect the real value of wealth.
E)cause net exports to rise.

Question

Quizplus · Accepted Answer

An exogenous rise in the domestic price level will affect the real value of wealth, leading to a decrease in desired real expenditure. This is because the purchasing power of households' wealth decreases when prices increase. This response assumes that other factors, such as nominal income, remain constant.

Other Things Being Equal,an Exogenous Rise in the Domestic Price