The real balances effect says that an increase in the price level
A. Reduces the real value of a fixed amount of savings, consequently reducing the quantity of goods and services purchased.
B. Increases the price of U.S. produced goods, causing foreign consumers to buy fewer U.S. goods.
C. Increases the need to borrow, which drives up interest rates and reduces loan-financed purchases.
D. Increases the price of U.S. produced goods, causing Americans to buy more imported goods.
Answer: A
You might also like to view...
The average propensity to consume (APC) equals
A) the change in consumption expenditures divided by the change in real disposable income. B) real disposable income divided by consumption expenditures. C) the change in real disposable income divided by the change in consumption expenditures. D) consumption expenditures divided by real disposable income.
Portfolio investment is defined as
A) the purchase of less than 40 percent of the shares of ownership in a company in another country. B) the acquisition of more than 40 percent of the shares of ownership in a company in another country. C) the diversification of purchasing shares in many companies in one country so that risk is kept to a minimum. D) none of the above