As the price level rises, the cost of borrowing money will (remain the same, fall, rise), causing the quantity of output demanded to (remain the same, fall, rise). This phenomenon is known as the (exchange rate, interest rate, wealth) effect. When an economy’s price level rises, ceteris paribus, the domestic price level relative to the price level in other countries will (rise, fall). This means that domestic exports will be relatively (less, more) expensive than before, while foreign imports will be relatively (less, more) expensive than they were previously. The number of domestic products purchased by foreigners (exports) will therefore (remain the same, fall, rise), and the number of foreign products purchased by domestic consumers and firms (imports) will (remain the same, fall, rise). Net exports will therefore(remain the same, fall, rise), causing the quantity of domestic output demanded to(remain the same, fall, rise). This phenomenon is known as the (interest rate, open economy, wealth) effect. As the price level rises, the cost of borrowing money willcausing the quantity of output demanded to. This phenomenon is known as theeffect.When an economy's price level rises, ceteris paribus, the domestic price level relative to the price level in other countries willThis means thatdomestic exports will be relativelypreviously. The number of domestic products purchased by foreigners (exports) will thereforeexpensive than before, while foreign imports will be relativelyexpensive than they wereand the number of foreignproducts purchased by domestic consumers and firms (imports) willNet exports will thereforecausing the quantity of domestic output demanded to. This phenomenon is known as theeffect. 3. Why the aggregate demand curve slopes downwardThe following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 120, and the quantity of outputdemanded is $500 billion. Moving up along the aggregate demand curve from point A to point B, the price level rises to 140, and the quantity ofoutput demanded falls to $300 billion.170180150B140130A120110AD10090100200300400500600700800REAL GDP (Billions of dollars)PRICE LEVEL

As the price level rises the cost of borrowing money will rise, causing the quantity of output…

Answered: As the price level rises, the cost of…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter26: The Neoclassical Perspective

Section: Chapter Questions

Problem 21P: Use Table 26.3 to answer the following questions. Sketch an aggregate supply and aggregate demand...

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Question

As the price level rises, the cost of borrowing money will (remain the same, fall, rise), causing the quantity of output demanded to (remain the same, fall, rise). This phenomenon is known as the (exchange rate, interest rate, wealth) effect.

When an economy’s price level rises, ceteris paribus, the domestic price level relative to the price level in other countries will (rise, fall). This means that domestic exports will be relatively (less, more) expensive than before, while foreign imports will be relatively (less, more) expensive than they were previously. The number of domestic products purchased by foreigners (exports) will therefore (remain the same, fall, rise), and the number of foreign products purchased by domestic consumers and firms (imports) will (remain the same, fall, rise). Net exports will therefore(remain the same, fall, rise), causing the quantity of domestic output demanded to(remain the same, fall, rise). This phenomenon is known as the (interest rate, open economy, wealth) effect.

As the price level rises, the cost of borrowing money will
causing the quantity of output demanded to
. This phenomenon is known as the
effect.
When an economy's price level rises, ceteris paribus, the domestic price level relative to the price level in other countries will
This means that
domestic exports will be relatively
previously. The number of domestic products purchased by foreigners (exports) will therefore
expensive than before, while foreign imports will be relatively
expensive than they were
and the number of foreign
products purchased by domestic consumers and firms (imports) will
Net exports will therefore
causing the quantity of domestic output demanded to
. This phenomenon is known as the
effect.

3. Why the aggregate demand curve slopes downward
The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 120, and the quantity of output
demanded is $500 billion. Moving up along the aggregate demand curve from point A to point B, the price level rises to 140, and the quantity of
output demanded falls to $300 billion.
170
180
150
B
140
130
A
120
110
AD
100
90
100
200
300
400
500
600
700
800
REAL GDP (Billions of dollars)
PRICE LEVEL

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