If the Price Level Rises, Then the Wealth Effect Leads

question 3

Multiple Choice

If the price level rises, then the wealth effect leads to

• A)a decrease in real wealth, an increase in current consumption expenditure, and an increase in saving.
• B)an increase in real wealth, an increase in current consumption expenditure, and an increase in saving.
• C)an increase in real wealth, an increase in current consumption expenditure, and a decrease in saving.
• D)a decrease in real wealth, a decrease in current consumption expenditure, and an increase in saving.
• E)a decrease in real wealth, an increase in current consumption expenditure, and a decrease in saving.

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Definitions:

Yield Spread

The difference in yields between two different types of financial securities, often used as a measure of relative risk.

Interest Rates

The cost of borrowing money expressed as a percentage of the loan amount, or the rate earned on invested funds.

Yield

The income returned on an investment, often expressed as an annual percentage of the cost or market value of the investment.

Discount Rate

The interest rate charged to commercial banks and other depository institutions for loans received from the Federal Reserve's discount window.