A rising price level decreases consumption by decreasing the real value of household wealth.

Question

Quizplus · Accepted Answer

When the price level increases, the purchasing power of money decreases. This means that the same amount of money can buy fewer goods and services. As a result, the real value of household wealth decreases because the same amount of money is worth less. This decrease in real wealth can lead to lower consumption as households may reduce their spending in response to the loss of purchasing power.

A Rising Price Level Decreases Consumption by Decreasing the Real