The Real Wealth Effect Provides a Partial Explanation for Why

question 36

Multiple Choice

The real wealth effect provides a partial explanation for why the aggregate demand curve slopes downward.Which of the following statements best explains the real wealth effect?

• A)At a lower price level domestically produced items are relatively less expensive than foreign goods and therefore are in greater demand.
• B)At a lower price level the real interest rate tends to be lower,and thus the quantity of investment goods demanded is larger.
• C)At a lower price level consumers will buy less because of a reduction in the real money supply.
• D)At a lower price level the purchasing power of accumulated savings is larger,and thus consumers will purchase more goods.

---

Definitions:

Direct Expenses

Expenses directly linked to the creation of certain products or services, including labor and raw materials.

Direct Expense

Expenses that can be directly traced to a specific cost object, such as a product or a department, including materials and labor directly involved in production.

Indirect Expense

Costs that are not directly tied to the production of goods or services, such as utilities, rent, and administrative salaries.

Direct Expense

Costs that can be directly attributed to the production of specific goods or services, such as raw materials and labor.