What impact does a higher price level have on interest rates, wealth, and investment spending?
What will be an ideal response?
A higher price level reduces the purchasing power of wealth, increases interest rates, and reduces investment spending.
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Suppose that John allocates $10,000 of his disposable income for necessities. Any additional income beyond that is both spent and saved. Assume he has a disposable annual income of $50,000 and an MPC=0.8. Based on this information the additional amount spent on non-necessities should be:
A. $10,000. B. $40,000. C. $35,000. D. $32,000.
If two goods are close substitutes:
a. Consumers will always buy the one that has the lower price b. An increase in the price of one causes the demand for the other to decrease c. A decrease in the price of one causes an increase in the demand for the other d. A fall in the price of one will decrease the demand for the other