Why Does an Increase in the Price Level Tend to Cause

question 56

Multiple Choice

Why does an increase in the price level tend to cause the consumption function to shift downward?

• A)An increase in the price level decreases disposable income.
• B)An increase in the price level increases the demand for fixed money assets.
• C)An increase in the price level decreases the value of fixed money assets.
• D)An increase in the price level decreases saving and increases debt.

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Definitions:

Market Making

A financial service activity where a firm quotes both buy and sell prices for financial instruments, facilitating liquidity and trading activity in the market.

Transaction Costs

Expenses incurred when buying or selling goods or services, which may include fees, taxes, or other costs beyond the price of the product itself.

Wealth

The total value of all financial assets and tangible possessions owned by an individual or entity after deducting liabilities.

Ask

The lowest price a seller is willing to accept for a given asset in financial markets; also known as the offer price.