A rise in the price level changes aggregate demand because
A) firms increase their investment when prices are higher.
B) the real value of people's wealth varies directly with the price level and so does their spending.
C) the real value of people's wealth decreases and so they decrease their consumption.
D) the more money people have, the more it is worth and hence the more goods and services they demand.

Question

Quizplus · Accepted Answer

The real value of people's wealth decreases as the price level rises, leading to a reduction in consumption. This is because their money buys less, reducing their real purchasing power.

A Rise in the Price Level Changes Aggregate Demand Because