When the price level rises, the real-balance effect suggests that households generally
Correct answer: A. Feel poorer and reduce some consumption spending
- A. Feel poorer and reduce some consumption spending
- B. Feel richer and increase planned tax payments
- C. Face lower export prices and increase foreign demand
- D. Receive higher real wages and reduce labour supply
Explanation
A higher price level reduces the purchasing power of money balances held by households. This can lower real wealth and reduce consumption, contributing to a downward slope of aggregate demand.
Report an error
The more specific you are, the faster it gets fixed. A source beats an opinion.
Prefer email? support@testustad.com
About Macroeconomics
The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
Practise Macroeconomics
1,499 free Macroeconomics MCQs from Economics, each with the correct answer and an explanation. Unlimited attempts, no account needed.
Exams that ask Economics questions like this
Economics is on 3 papers prepared for on TestUstad, and all of them draw the same bank, so this question is worth knowing for every one of them.
More Macroeconomics questions
What is the usual effect of a decrease in the central bank's policy interest rate on aggregate demand?
In the simple macroeconomic model, disposable income is the income that households can use for
Which limitation of GDP makes it an incomplete measure of economic welfare?
Which change would most directly shift the short-run aggregate supply curve to the left?
If a country's exports exceed its imports of goods and services, the country has
Which event is most likely to improve a country's terms of trade?