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:

Systematic Risk

The risk inherent to the entire market or market segment, also known as market risk, which cannot be eliminated through diversification.

Subjective Approach

An approach to making decisions or assessments that relies on individual preferences, emotions, or thoughts, instead of objective data or proof.

WACC

Weighted Average Cost of Capital; a calculation of a firm's cost of capital in which each category of capital is proportionately weighted, representing the average cost of funding from all sources.

Pure Play

A company that focuses on a specific industry or product segment without diversification into other areas.