"When the price level increases, aggregate planned expenditure increases and equilibrium expenditure increases." Is the preceding statement correct or incorrect? Briefly explain your answer
What will be an ideal response?
The statement is incorrect. An increase in the price level decreases aggregate planned expenditure because the purchasing power of money falls, the real interest rises, and the price of imports become less expensive relative to domestically produced goods. Because aggregate planned expenditure decreases, equilibrium expenditure decreases.
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Which of these is the best measure of the average standard of living in an economy?
a. The unemployment rate b. Nominal income c. Real GDP d. National debt e. Real GDP per capita
The real-income effect is likely to be greater when
A) the substitution effect is not very large. B) the marginal utility of the last unit is high. C) the marginal utility per dollar spent on the last unit is high. D) the good is an expensive good.