An exogenous fall in the domestic price level causes an increase in real wealth and
A)a fall in desired investment.
B)a rise in desired consumption.
C)a downward shift in the AE curve.
D)a downward shift of the net export function.
E)a fall in government purchases.

Question

Quizplus · Accepted Answer

An exogenous fall in the domestic price level increases the purchasing power of consumers, leading to an increase in their desired consumption. This is because goods and services are now relatively cheaper, so consumers can buy more with the same amount of income. The increase in consumption leads to an increase in aggregate demand, which may partially offset the initial fall in the price level.

An Exogenous Fall in the Domestic Price Level Causes an Increase