Which of the following choices best describes the effects on consumption, investment, and net exports that would result from an increase in the price level, other factors held constant?
At higher price levels, consumption, investment, and net exports all decrease. A rising price level decreases consumers’ real wealth, so they consume less. The higher price level will increase interest rates, which causes business investment to decrease. Rising domestic prices will also reduce foreign purchases of the country’s goods, decreasing net exports.
