An increase in the price level results in a(n)________ in household consumption spending and a(n)________ in investment spending.
A)increase; decrease
B)increase; increase
C)decrease; decrease
D)decrease; increase

Question

Quizplus · Accepted Answer

An increase in the price level leads to a decrease in the purchasing power of households and thus, a decrease in consumption spending. Similarly, an increase in the price level increases the cost of production for businesses, leading to a decrease in investment spending. Therefore, both household consumption spending and investment spending decrease with an increase in the price level.

An Increase in the Price Level Results in A(n)________ in Household