Which of the Following Helps Explain Why Real GDP Is

question 124

Multiple Choice

Which of the following helps explain why real GDP is inversely related to the price level within the framework of the AD-AS model?

• A) As prices fall, domestic consumers have an incentive to buy more of the cheaper goods and services.
• B) As prices fall, the monetary authorities will have to increase the money supply, which will lead to an increase in the quantity of goods and services purchased.
• C) As prices fall, the government will have to reduce taxes, which will lead to an increase in the quantity of goods and services purchased.
• D) As prices fall, the wealth of people holding the fixed quantity of money increases, causing them to expand their purchases of goods and services.