A Rise in the Price Level Changes Aggregate Demand Because

question 339

Multiple Choice

A rise in the price level changes aggregate demand because

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

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Definitions:

Regressive Taxation

The tax as a percentage of income decreases as income increases.

Progressive Taxation

Progressive taxation is a tax system where the tax rate increases as the taxable amount or income of the taxpayer increases, making it proportionally more significant for higher-income earners.

Proportional Taxation

A tax system where the tax rate is fixed and does not change with the income level of the taxpayer, implying everyone pays the same percentage of their income in taxes.

Regressive Taxation

A tax system where the tax rate decreases as the taxable amount increases, meaning lower-income individuals pay a higher percentage of their income compared to higher-income earners.