Suppose the price level increases.Other things constant, will consumption spending increase or decrease?
A) increase, because real income rises
B) decrease, because real income rises
C) increase, because the real value of wealth increases
D) decrease, because the real value of wealth decreases

Question

Suppose the price level increases.Other things constant, will consumption spending increase or decrease?  
A) increase, because real income rises 
B) decrease, because real income rises 
C) increase, because the real value of wealth increases 
D) decrease, because the real value of wealth decreases

Quizplus · Accepted Answer

When the price level increases, the real value of wealth decreases and individuals will have less purchasing power. Therefore, consumption spending will decrease.

Suppose the Price Level Increases