An increase in the price level results in a decline in aggregate demand because higher prices will cause the nominal interest rates to increase and GDP to drop. This effect is called the: Group of answer choices wealth effect. income effect. interest rate effect.

An increase in the price level results in a decline in aggregate demand because higher prices will cause the nominal interest rates to increase and GDP to drop. This effect is called the: Group of answer choices wealth effect. income effect. interest rate effect.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter16: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 9PA

See similar textbooks

Related questions

Q: Question The rate of output and planned expenditures for the economy of Timbuktu are shown in the…

A: Employment is a relationship between the two of the parties being based upon a contract where work…

Q: Economics #18 If last year there was deflation, and velocity of money remained constant, we can…

A: The quantity theory of money is given by MV=PY Where M= money supply V=velocity of money P=price…

Q: 3. Which of the following is incorrect? A) Aggregate Demand is the demand for and hence money spent…

A: The items that are being used for the satisfaction of human needs along with wants and also tend to…

Q: #22 If countries that imported goods and services from the United States went into recession, we…

A: Recession is a situation of economic downfall when there is higher supply of goods and services in…

Q: write the short nots under each statement: 1. The main differences between gross domestic product…

A: Below is the formula of gross national product. GNP = GDP + Net income from abroad

Q: During the late 1990s, Japan experienced reductions in the GDP deflator. Given this…

A: Here, it is given that the GDP deflator decreased in Japan during the late 1990s.

Q: The country of Merryville has an unemployment rate that is greater than the natural rate of…

A: If actual unemployment rate > natural unemployment rate, it means that Real GDP < Potential…

Q: 1. Which of the following statements is true about shifts in aggregate demand: a) Shifts to the…

A: Note: In the BNED Guidance, only the first question can be answered at a time. Resend the question…

Q: 47. What is the difference between a recession and a depression? A depression is a particularly…

A: The ‘‘business cycle’’ refers to a fluctuation in production, employment, trade and general activity…

Q: Choose the statement that does not describe Microeconomics. a. The effect of increasing the money…

A: Economics is the study of allocating the scarce resources efficiently and effectively. The three…

Q: Using the AD-AS diagram, explain how an autonomous increase in the price of raw materials would…

A: The aggregate supply is the total amount of services and commodities that firms in an economic plan…

Q: 1.) If consumption falls, Keynesians believe unemployment will ________ for everyone, while…

A: Austrian economist Friedrich Hayek believed that the New Deal wasn’t sustainable. He felt that…

Q: 32- If there is inflation and high unemployment in an economy, there is X in this economy.” Find…

A: National Income is the total value of goods and services produced during a financial year by an…

Q: 69. The shortfall between actual real GDP and potential GDP a. decreases as the unemployment rate…

A: When real GDP is less than Potential GDP, the economy is facing a recessionary output gap.

Q: 1. Classical economists assumed that wage rates, prices, and interest rates are flexible and will…

A: A downturn or recession can be characterized as a supported time of feeble or negative development…

Q: A key supply-side policy is to make sure that workers are well trained. Which of the following is…

A: Supply side policies impact productive potential of an economy. Government can use supply side…

Q: Which of the following events may lead to deflation? A. decrease in government spending during a…

A: Deflation is the decrease in average price level of goods and services in the economy.

Q: 2. Use the model of aggregate demand and short-run aggregate supply to explain how each of the…

A: Hi, thanks for the question. Since you posted question with multiple subparts, I will answer for the…

Q: 4. The country of Merryville has an unemployment rate that is greater than the natural rate of…

A: Question 4: (a) According to the macroeconomic model of AD-AS, the long run equilibrium or the…

Q: During the spring of 2014 the Midwestern U.S., which has a large agricultural base, experiences…

A: The aggregate demand curve shows all combinations of output and price levels at which the goods and…

Q: In the long run, technological progress Answer and increases in the money supply both make the price…

A: Since you have asked multiple questions, we will solve first question for you. If you want any…

Q: 4. Suppose that people expect inflation to equal 3 percent, but in fact prices rise by 5 percent.…

A: NOTE : Hello. Since you have posted multiple questions and not specified which question needs to be…

Q: Find and describe an inflation contemporary issue of supply and demand into three paragraphs with…

A: Demand and supply In an economy there is always a demand for goods and services and the supply of…

Q: 5. Assume there is a decrease in the demand for goods and services, which leads to a decrease in the…

A: Gross Domestic Product (GDP) refers to the total number of goods and services produced and sold in…

Q: 4. Using the aggregate demand and supply model, demonstrate the effect of a $100 billion dollar open…

A: Open market operations by the government, involve, buying and selling of securities, in order to…

Q: Show and explain by using a graph, what will happen to the price level and real GDP if the quantity…

A: If the quantity of money increases that means the money supply increases in the economy. As the…

Q: . Which of the following are determinants of aggregate demand? Choose all that apply. A. a spike in…

A: Answer: Determinants of aggregate demand: the determinants of aggregate demand refer to the factors…

Q: 32. The Fisher effect creates a 2 points link between and expected profits; unemployment rates O…

A: Answer is given below

Question

An increase in the price level results in a decline in aggregate demand because higher prices will cause the nominal interest rates to increase and GDP to drop. This effect is called the:

Group of answer choices

wealth effect.

income effect.

interest rate effect.

trade effect.

Video Video

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

On a microeconomic demand curve, a decrease in price causes an increase in quantity demanded because the product in question is now relatively less expensive than substitute products. Explain why aggregate demand does not increase for the same reason in response to a decrease in the aggregate price level. In other words, what causes total spending to increase if it is not because goods are now cheaper?
(17) Assume that the economy begins in long run equilibrium and the central bank increases the target interest rate. In the short run, what happens to the level of GDP? Group of answer choices (A) It stays the same (B) It goes up (C) It goes down
(21) Assume that the economy begins in long run equilibrium and the central bank increases the target interest rate. In the long run, what happens to the level of GDP? Group of answer choices (A) It goes down (B) It goes up (C) It stays the same
(22) Assume that the economy begins in long-run equilibrium and that the federal reserve decides to use open market operations to sell bonds. In the short run, what happens to the level of GDP? Group of answer choices (A) It goes down. (B) It goes up. (C) It stays the same.
(20) Assume that the economy begins in long run equilibrium and the central bank increases the target interest rate. In the long run, what happens to the price level? Group of answer choices (A) It goes down (B) It stays the same (C) It goes up
20 - As a result of rising interest rates ........A) The purchasing power decreases.B) Unemployment will decrease.C) Production increases.D) the government's income will increase.E) Investments increase.
7) During the recession of 2007-2009, the U.S. economy was experiencing a decrease in home prices and consumer wealth, a credit crisis in the financial markets, and declining consumer and business confidence. What components of aggregate demand were affected and what was the impact on real output? What were the policy options?
18. Using AS-AD diagrams, illustrate each of the following economic situations by showing the patterns and shifts of either AS or AD that could cause them to happen: a. a rise in the price level triggered by higher oil prices; b. a rise in inflation that happens four years in a row because government spending keeps increasing; c. foreign investors gain confidence and increase the level of investment in the U.S. economy; d. the economies of trading partners grow very slowly, leading to a decrease in exports to those countries e. output declines slightly but the price level falls a great deal.
18. Using AS-AD diagrams, illustrate each of the following economic situations by showing the patterns and shifts of either AS or AD that could cause them to happen: a. a rise in the price level triggered by higher oil prices; b. a rise in inflation that happens four years in a row because government spending keeps increasing; c. foreign investors gain confidence and increase the level of investment in the U.S. economy; d. the economies of trading partners grow very slowly, leading to a decrease in exports to those countries e. output declines slightly but the price level falls a great deal. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
7. What is the interest rate effect that explains why the aggregate demand curve slopes downward? A) It refers to the effect of changes in the price level on quantity of investment demanded which in turn affects interest rates. B) It refers to the effect of interest rates on borrowing which in turn affects consumption spending. C) It refers to the effect of changes in the price level on interest rates which in turn affects the quantity of investment demanded. D) It refers to the shifts in aggregate demand when interest rates change. 8. All other things unchanged, a higher exchange rate A) reduces net exports and aggregate demand. B) reduces net exports and increases aggregate demand. C) increases net exports and aggregate demand. D) increases net exports and reduces aggregate demand. 9. Suppose investment rises by $50 billion at each price level. If the value of the multiplier…
5. Suppose that the central bank sells government bonds. Use a graph of the money market to show what this does to the value of money and price level.
22.The equation of exchange summarizes the long-run relationship between a. inflation and unemployment. b. real gross domestic product (GDP) and the price level. c. inputs and outputs. d. the price level and the quantity of money. e. the quantity of money and nominal GDP.