Which one of the following statements is the MOST accurate?
A) A rise in domestic real income raises aggregate demand for home output.
B) A rise in domestic real income decreases aggregate demand for home output because of the increase demand for import.
C) A rise in domestic real income keeps aggregate demand for home output at the same level.
D) It is difficult to tell whether a rise in domestic real income affects positively or negatively aggregate demand for home output.
E) A rise in domestic real income decreases aggregate demand for home output because the CA is raised.

Question

Quizplus · Accepted Answer

When domestic real income rises, individuals have more purchasing power which leads to higher consumption, investment, and government spending. This increased spending leads to an increase in demand for home output, therefore, A is the most accurate statement.

Which One of the Following Statements Is the MOST Accurate