Suppose the price level decreases.Other things constant, will people consume more or less?
A) more, because nominal income will fall
B) less, because nominal income will rise
C) more, because the real value of people's wealth will increase
D) less, because real income will decrease

Question

Suppose the price level decreases.Other things constant, will people consume more or less?  
A) more, because nominal income will fall 
B) less, because nominal income will rise 
C) more, because the real value of people's wealth will increase 
D) less, because real income will decrease

Quizplus · Accepted Answer

When the price level decreases, the real value of people's wealth increases. This means that people feel wealthier, which in turn increases their purchasing power. As a result, people are likely to consume more.

Suppose the Price Level Decreases