Other things remaining constant, an increase in the average price level _____.
A) causes a decrease in aggregate supply
B) affects only aggregate demand and not aggregate supply
C) causes an increase in aggregate demand
D) causes a decrease in aggregate demand

Question

Quizplus · Accepted Answer

An increase in the average price level reduces the purchasing power of money, leading to a decrease in the quantity of goods and services demanded, hence decreasing aggregate demand.

Other Things Remaining Constant, an Increase in the Average Price