As the price level decreases, the cost of borrowing money will (remain the same/increase/decrease) , causing the quantity of output demanded to (rise/increase/fall/remain the same) . This phenomenon is known as the (exchange rate/interest rate/wealth) effect. Additionally, as the price level decreases, the impact on the domestic interest rate will cause the real value of the dollar to (rise/decrease/falll) in foreign exchange markets. The number of domestic products purchased by foreigners (exports) will therefore (rise/increase/fall/remain the same) , and the number of foreign products purchased by domestic consumers and firms (imports) will (rise/decrease/fall/remain the same) . Net exports will therefore (rise/increase/fall/remain the same) , causing the quantity of domestic output demanded to (fall/increase/remain the same/rise) . This phenomenon is known as the (exchange rate/interest rate/wealth) effect.
As the price level decreases, the cost of borrowing money will (remain the same/increase/decrease) , causing the quantity of output demanded to (rise/increase/fall/remain the same) . This phenomenon is known as the (exchange rate/interest rate/wealth) effect. Additionally, as the price level decreases, the impact on the domestic interest rate will cause the real value of the dollar to (rise/decrease/falll) in foreign exchange markets. The number of domestic products purchased by foreigners (exports) will therefore (rise/increase/fall/remain the same) , and the number of foreign products purchased by domestic consumers and firms (imports) will (rise/decrease/fall/remain the same) . Net exports will therefore (rise/increase/fall/remain the same) , causing the quantity of domestic output demanded to (fall/increase/remain the same/rise) . This phenomenon is known as the (exchange rate/interest rate/wealth) effect.
Chapter18: Debates In Macroeconomics Over The Rolse And Effects Of Government
Section: Chapter Questions
Problem 2WNG
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Question
100%
As the
Additionally, as the price level decreases, the impact on the domestic interest rate will cause the real value of the dollar to (rise/decrease/falll) in foreign exchange markets. The number of domestic products purchased by foreigners (exports) will therefore (rise/increase/fall/remain the same) , and the number of foreign products purchased by domestic consumers and firms (imports) will (rise/decrease/fall/remain the same) . Net exports will therefore (rise/increase/fall/remain the same) , causing the quantity of domestic output demanded to (fall/increase/remain the same/rise) . This phenomenon is known as the (exchange rate/interest rate/wealth) effect.
Transcribed Image Text:The graph below shows the aggregate demand (AD) curve for a hypothetical economy. At point X, the quantity of output demanded is $300 billion,
and the price level is 140. Moving down along the AD curve from point X to point Y, the quantity of output demanded increases to $500 billion, and the
price level decreases to 120.
PRICE LEVEL
170
160
150
140
130
120
110
100
90
0
1
100
300
400
500
OUTPUT (Billions of dollars)
200
AD
600
700
As the price level decreases, the cost of borrowing money will
to
This phenomenon is known as the
800
causing the quantity of output demanded
effect.
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