The change in total planned real expenditures resulting from a change in the real value of money balances when the price level changes, all other things held constant, is
A) the real-balance effect.
B) the interest rate effect.
C) the open economy effect.
D) demand side inflation.

Question

Quizplus · Accepted Answer

The change in total planned real expenditures resulting from a change in the real value of money balances when the price level changes is known as the real-balance effect. When the price level declines, the real value of money balances increases, which increases the purchasing power of consumers, enabling them to spend more, resulting in an increase in total planned real expenditures. Conversely, when the price level rises, the real value of money balances decreases, decreasing consumers' purchasing power, resulting in a decrease in total planned real expenditures.

The Change in Total Planned Real Expenditures Resulting from a Change