Question

The purchasing power of the dollar a. is inversely related to the level of aggregate demand. b. has been increasing in recent years because of economic growth. c. varies directly with the cost-of-living index. d. is the reciprocal of the price level.

Answer 1

Answer:

The correct answer is: d. is the reciprocal of the price level.

Explanation:

In economics, the term "purchasing power" refers to the amount of goods and services that a currency can buy. It is directly related to the price level as follows: when price decreases, people are able to purchase more goods and thus we say that purchasing power increased; on the other hand, when prices increase, people are able to buy fewer goods with the same amount of money, and thus we say that purchasing power decreased.