What Is One Implication of the Real-Balance Effect

question 17

Multiple Choice

What is one implication of the real-balance effect?

• A) The part of your wealth that you hold in the form of cash loses some of its value as the price level rises.
• B) When the price level rises, people have an incentive to work harder in order to earn a higher income.
• C) When the price level falls, most consumers reallocate their spending so as to have an equal balance between necessities and luxuries.
• D) Aggregate demand and aggregate supply can never reach long-run equilibrium.

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