Which of the following helps explain why real GDP is inversely related to the price level within the framework of the AD-AS model?
a. As prices fall, domestic consumers have an incentive to buy more of the cheaper goods and services.
b. As prices fall, the monetary authorities will have to increase the money supply, which will lead to an increase in the quantity of goods and services purchased.
c. As prices fall, the government will have to reduce taxes, which will lead to an increase in the quantity of goods and services purchased.
d. As prices fall, the wealth of people holding the fixed quantity of money increases, causing them to expand their purchases of goods and services.
d
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If the Federal Reserve conducts open market purchases, the money supply ________, shifting the LM curve to the ________, everything else held constant
A) decreases; right B) decreases; left C) increases; right D) increases; left
By how much does the real, bilateral exchange rate change when the nominal, bilateral exchange rate changes from $1.40/£ to $1.60/£, the U.S. tradable basket from $2,100 to $2,200 and the British tradable basket from £1,500 to £1,600?
a. The real exchange rate rises by 16.35%. b. The real exchange rate falls by 3.1% c. The real exchange rate rises by 3.1% d. The real exchange rate falls by 10.8% e. The real exchange rate falls by 12.5%