The idea that higher prices reduce the purchasing power of financial assets and lead to less consumption and more saving is known as the A. Foreign purchases effect. B. Income effect. C. Aggregate demand effect. D. Real balances effect.
The idea that higher prices reduce the purchasing power of financial assets and lead to less consumption and more saving is known as the A. Foreign purchases effect. B. Income effect. C. Aggregate demand effect. D. Real balances effect.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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The idea that higher prices reduce the
A. Foreign purchases effect.
B. Income effect.
C. Aggregate demand effect.
D. Real balances effect.
Expert Solution
Step 1
The purchasing power refers to the value of a currency expressed in terms of the amount that one unit of money can buy of goods or services. Inflation reduces the value of a currency's purchasing power, which increases the price of goods and services while deflation increase their purchasing power.
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