A reason why an increase in the price level decreases the quantity of real GDP demanded is that
A) the buying power of money increases.
B) potential GDP decreases.
C) the price of domestic goods and services increases relative to foreign goods and services.
D) the real interest rate falls.
E) the inflation rate decreases.
C
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We use a two-period model because
A) the business cycle has two phases: contraction and recovery. B) it is the simplest dynamic model. C) we want to make a distinction between young and old households. D) this is the horizon of the politicians that formulate policy.
What is the potential drawback if firms follow a price leadership model in an actual market?
A) The price leader's behavior may be interpretted as collusion and be subject to antitrust sanctions. B) Excessive price signalling may force all of the firms to adopt price-taking strategies, which reduces overall profits among the firms. C) Disputes about which firm should be the price leader may lead to price wars. D) Signalling efforts increase the firms' fixed costs of production.