When the Inflation Rate Increases, PAE ______, Which in Turn

question 17

Multiple Choice

When the inflation rate increases, PAE ______, which in turn causes Y to ______ because of ______.

• A)falls; fall; the income-expenditure multiplier
• B)falls; rise; the income-expenditure multiplier
• C)rises; rise; the wealth effect
• D)rises; fall; the wealth effect

---

Definitions:

Incentive

A thing that motivates or encourages someone to do something, often seen in psychology as a way to influence behavior.

Homeostasis

The process by which biological systems maintain stability and equilibrium while adjusting to changes necessary for survival.

Drive-Reduction Theory

A theory that postulates that the motivation for behavior arises from biological needs that drive an organism to seek homeostasis or a state of balance.

Blood Vessels Constrict

The narrowing of blood vessels, which can increase blood pressure and reduce blood flow to certain parts of the body.