An increase in the price level results in a(n)________ in the quantity of real GDP demanded because ________.
A)decrease; a higher price level reduces consumption, investment, and net exports
B)increase; a higher price level reduces consumption, investment, and net exports
C)decrease; a higher price level increases consumption, investment, and net exports
D)increase; a higher price level increases consumption, investment, and net exports
E)increase; a higher price level reduces consumption, investment and government spending

Question

Quizplus · Accepted Answer

An increase in the price level results in a decrease in the quantity of real GDP demanded because a higher price level reduces consumption, investment, and net exports. This is due to the fact that higher prices make goods and services more expensive, reducing people's purchasing power and their ability to afford as much as they once could. As a result, consumers demand less, businesses invest less, and foreign countries may buy fewer exports, leading to a decrease in overall demand and real GDP.

An Increase in the Price Level Results in A(n)________ in the Quantity