When prices rise in the United States, what is the effect on consumption and aggregate expenditure?
A)Real interest rates rise, and this decreases consumption and aggregate expenditures.
B)The real value of wealth decreases, leading to a decrease in consumption and a decrease in aggregate expenditure.
C)The real value of wealth increases, leading to an increase in consumption and an increase in aggregate expenditure.
D)The real value of debt increases, and this increases consumption and aggregate expenditure.

Question

Quizplus · Accepted Answer

When prices rise in the United States, the real value of wealth decreases because the purchasing power of people's money decreases. This leads to a decrease in consumption as people can afford to buy fewer goods and services with their money. As a result, aggregate expenditure also decreases.

When Prices Rise in the United States, What Is the Effect