As the price level falls and other things remain the same, real wealth and .

Question

Quizplus · Accepted Answer

When the price level falls, real wealth (the purchasing power of money) increases. This leads to an increase in the quantity of real GDP demanded as people are able to purchase more goods and services with their wealth. Option A is incorrect because a decrease in real wealth would lead to a decrease in spending and therefore a decrease in short-run aggregate supply. Option C is incorrect because an increase in aggregate demand would lead to an increase in the price level, not a decrease. Option D is incorrect because an increase in real wealth would lead to an increase in spending and therefore an increase in the quantity of real GDP demanded.

As the Price Level Falls and Other Things Remain the Same