According to the real wealth effect,if you are living in a period of falling price levels on a fixed income (that is NOT indexed),what is the impact of the cost of the goods and services you buy and your real income?
A)The cost of goods and services and your real income both increase.
B)The cost of goods and services decreases, and your real income increases.
C)The cost of goods and services decreases, and your real income remains the same.
D)The cost of goods and services and your real income both decrease.

Question

Quizplus · Accepted Answer

When price levels fall, the cost of goods and services decreases, and since your income is fixed, your real income effectively increases as you can buy more with the same amount of money.

According to the Real Wealth Effect,if You Are Living in a Period