Increases in the overall price level:
A) increases people's dollar-denominated wealth.
B) generally has no effect on spending.
C) result in people increasing their consumption.
D) result in people reducing their consumption.

Question

Quizplus · Accepted Answer

An increase in the overall price level leads to a decrease in purchasing power, which means that people will have to spend more money to buy the same goods and services they used to buy for less. As a result, people tend to reduce their consumption in the face of rising prices, making choice (D) the correct answer.

Increases in the Overall Price Level