Because of the wealth effect, a rising aggregate price level _____ the purchasing power of wealth and therefore _____ output demanded.
A) increases; increases
B) increases; reduces
C) reduces; increases
D) reduces; reduces

Question

Quizplus · Accepted Answer

The wealth effect states that as the aggregate price level rises, the purchasing power of wealth decreases, leading to a reduction in the quantity of output demanded.

Because of the Wealth Effect, a Rising Aggregate Price Level