A reason why an increase in the price level decreases the quantity of real GDP demanded is that
A) potential GDP decreases.
B) the real interest rate falls.
C) the inflation rate decreases.
D) the buying power of money increases.
E) the price of domestic goods and services increases relative to foreign goods and services.

Question

Quizplus · Accepted Answer

An increase in the price level makes domestic goods and services more expensive relative to foreign goods and services. This can lead to a decrease in the quantity of real GDP demanded as consumers and businesses may opt for cheaper foreign alternatives, reducing the demand for domestically produced goods and services.

A Reason Why an Increase in the Price Level Decreases