In the aggregate demand relation,an increase in the price level causes output to decrease because of its effect on
A)government spending.
B)the money market and,subsequently,investment.
C)the nominal wage.
D)firms' markup over labor costs.
E)the expected price level.

Question

Quizplus · Accepted Answer

An increase in the price level reduces the real money supply, leading to higher interest rates, which decreases investment and, consequently, output.

In the Aggregate Demand Relation,an Increase in the Price Level