Question

the idea that a decrease in the price level raises the real value of households’ money holdings, which increases consumer spending and the quantity of goods and services demanded is known as

Answer 1

The idea that a decrease in the price level raises the real value of households’ money holdings, which increases consumer spending and the quantity of goods and services demanded is known as the wealth effect.

According to this theory, as the price level falls, the real value of money holdings increases, making consumers feel wealthier and increasing their willingness to spend. This increased spending then leads to an increase in the quantity of goods and services demanded.

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