Which of the Following Correctly Describes How an Increase in the Price

question 231

Multiple Choice

Which of the following correctly describes how an increase in the price level affects consumption spending?

• A)An increase in the price level raises real wealth,which causes consumption to increase.
• B)An increase in the price level decreases the amount of money a household needs to buy goods and raises the interest rate,which causes consumption to increase.
• C)An increase in the price level increases the amount of money a household needs to buy goods and raises the interest rate,which causes consumption to increase.
• D)An increase in the price level lowers real wealth,which causes consumption to decrease.

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Definitions:

CAPM

The Capital Asset Pricing Model is a theoretical framework that explains how the expected return on assets, especially stocks, is related to their systematic risk.

Measure of Return

A financial metric used to quantify the performance of an investment by assessing the gain or loss it generates.

Unit of Risk

A Unit of Risk quantifies the exposure to potential loss in an investment, typically measuring the volatility or variability of returns over a specified period.

Standard Deviation

A measure of the dispersion or variability of a set of values, indicating how much the values differ from the mean of the set.