One of the reasons why higher prices affect the quantity of real output demanded is
A) at higher prices, business people become richer, so demand rises
B) at higher prices, real household wealth is reduced, so the quantity of output demanded falls
C) when prices are high, consumers fear that a recession is approaching
D) when pricing are rising, the central bank tends to reduce interest rates, thereby reducing demand
E) at higher prices, time becomes more valuable, so people buy now instead of later

Question

Quizplus · Accepted Answer

When prices are higher, real household wealth is reduced because consumers have to spend more on goods and services, which leaves less money available for other expenditures. This reduction in consumer purchasing power ultimately leads to a decrease in the quantity of real output demanded.

One of the Reasons Why Higher Prices Affect the Quantity