The Real Balances Effect Predicts That Higher Prices

Multiple Choice

The real balances effect predicts that higher prices:

A) make people worse off by reducing the value of their wealth, leading them to save more and spend less.
B) make people worse off by reducing the value of their wealth, leading them to save less and spend more.
C) make people better off by increasing the value of their wealth, leading them to save less and spend more.
D) increase borrowing, leading to higher interest rates and less investment.
E) make domestic goods relatively more expensive, increasing the demand for domestic goods and decreasing the demand for foreign goods.