If national output is fixed and there is a 10 percent increase in total spending,the price level will
A) fall by 10 percent.
B) remain constant.
C) rise by 10 percent.
D) rise by 10 percent times the multiplier.
E) rise by 10 percent times the dollar value of output.

Question

Quizplus · Accepted Answer

If national output is fixed, any increase in total spending would lead to an increase in prices since demand for goods and services would exceed supply. This would lead to an increase in the price level by the same percentage as the increase in total spending, which is 10 percent in this case. Therefore, the correct answer is option C.

If National Output Is Fixed and There Is a 10