Which of the Following Is a Reason Why Increases in the Price

question 177

Multiple Choice

Which of the following is a reason why increases in the price level result in a decline in aggregate expenditure?

• A)Price level increases raise real wealth,which causes consumption spending and aggregate expenditure to decline.
• B)Price level increases cause firms and consumers to hold more money,which raises the interest rate.Higher interest rates lower consumption and planned investment expenditures,which lowers aggregate expenditure.
• C)Price level increases in the United States relative to other countries raise net exports,which lowers aggregate expenditure.
• D)As the price level rises,government spending falls,which lowers aggregate expenditure.

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Definitions:

Total Revenues

The total amount of money generated by a firm or entity from its business activities, before any expenses are subtracted.

Average Total Cost

The total cost of production divided by the quantity of output produced; it includes both fixed and variable costs.

Long-Run Equilibrium

Long-run equilibrium occurs when an economy's resources are fully employed and the output and input markets are in balance, with no external forces causing disruption.

Market Price

The current price at which a good or service can be bought or sold in a marketplace.