Ben N.Jerry prefers to keep his $10 000 retirement savings buried in the backyard.After an increase in the price level,Ben reduces the amount of goods and services he wants to purchase.Ben's rationalization,that now his retirement savings won't buy as much,is consistent with which explanation of the aggregate demand curve's negative slope?

Question

Quizplus · Accepted Answer

The real wealth effect states that as the price level increases, the purchasing power of people's wealth decreases, causing them to reduce their consumption and investment spending, leading to a decrease in aggregate demand. This is consistent with Ben's rationalization of his retirement savings's reduced purchasing power.

Ben NJerry Prefers to Keep His $10 000 Retirement Savings Buried