Which of the Following Helps Explain Why the Aggregate Quantity

question 35

Multiple Choice

Which of the following helps explain why the aggregate quantity demanded of goods and services is inversely related to prices within the framework of the AD/AS model?

• A) As prices fall, domestic consumers have an incentive to buy less 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.

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Definitions:

Spending

The process of spending money to buy goods or services.

Income

The amount of money received over a period of time through work, business, investments, or other sources.

Goods

Tangible items that satisfy human wants or needs and are available for purchase.

Maximizing Utility

The economic principle that individuals seek to obtain the greatest satisfaction or utility from their consumption choices within their income constraints.