When prices fall in Germany, what is the effect on consumption and aggregate expenditure in Germany?
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 fall in Germany, the real value of wealth increases as consumers can purchase more goods and services with the same amount of money. This leads to an increase in consumption as consumers feel more confident about their purchasing power. As a result, aggregate expenditure in Germany also increases.

When Prices Fall in Germany, What Is the Effect on Consumption