The wealth effect suggests:
A) a positive relationship between the price level and consumption spending.
B) that price level changes do not affect real wealth.
C) a negative relationship between the price level and consumption spending.
D) that when the price level increases, the real value of money increases also.

Question

Quizplus · Accepted Answer

The wealth effect suggests a negative relationship between the price level and consumption spending. As the price level increases, the real value of money decreases, leading to reduced purchasing power and consequently, lower consumption spending.

The Wealth Effect Suggests