One reason the amount of real output demanded declines when the aggregate price level rises is the resulting reduction in household wealth, called the:
A) income effect.
B) substitution effect.
C) wealth effect.
D) interest rate effect.

Question

Quizplus · Accepted Answer

The wealth effect refers to the decrease in consumer spending that occurs when the aggregate price level rises, reducing the real value of household wealth.

One Reason the Amount of Real Output Demanded Declines When