Whenever there is excess demand for real balances, short-run adjustment occurs because:
a. savers and investors buy bonds and drive up their prices (drive down nominal rates of interest).
b. investors and borrowers sell bonds (convert to cash) and drive down their prices (drive up nominal rates of interest).
c. the price level falls to restore real balances.
d. aggregate demand is decreased to restore equilibrium.
Answer: b. investors and borrowers sell bonds (convert to cash) and drive down their prices (drive up nominal rates of interest).
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Profits represent
A) a reward to entrepreneurs. B) the income earned from a bond. C) the difference between total tax revenue and total government spending. D) the payments firms make to their employees.
A decrease in the price level accompanied by no change in the money wage rate leads to ________ movement along the ________ aggregate supply curve
A) a downward; short-run B) an upward; short-run C) a downward; long-run D) an upward; long-run