One reason that the aggregate demand curve slopes downward is because
A) higher price levels increase real wealth and consumption.
B) higher price levels reduce net exports.
C) higher price levels increase interest rates.
D) higher price levels increase investment.
42) A higher domestic price level should
A) decrease net exports.
B) increase desired investment.
C) increase real wealth and consumption.
D) none of these.
43) The real balance effect shows that
A) aggregate demand is upward sloping.
B) a higher price level leads to higher interest rates.
C) a lower price level will increase the purchasing power of currency and increase personal consumption.
D) consumption and the price level are positively correlated.
44) If you have $1 000 and the GDP deflator increases from 112 to 120, then
A) the value of the $1 000 increases.
B) the $1 000 will buy 7 percent more of the goods and services produced by society.
C) the $1 000 will buy 7 percent less of the goods and services produced by society.
D) you will be able to more goods, but the real value of those goods will decrease at the same time.
45) Another term for the real-balance effect is
A) the substitution effect.
B) the wealth effect.
C) the indirect effect.
D) the interest rate effect.
46) The interest rate effect is considered to have
A) a direct effect because interest rates move in the same direction as changes in quantity demanded.
B) a direct effect because increases in the price level lead to increases in interest rates.
C) an indirect effect because price level increases cause borrowing to increase, which raises interest rates and reduces quantity demanded for goods and services.
D) an indirect effect because higher prices lead to lower interest rates.
47) Higher interest rates tend to
A) reduce the quantity demanded of goods and services.
B) lower the costs of building new plants and equipment.
C) increase the quantity demanded of goods and services.
D) make it less costly for people to buy houses and cars.
48) According to the interest rate effect, a fall in the price level will
A) decrease the real value of money balances which causes the quantity demanded of aggregate output to increase.
B) increase lending which causes interest rates to fall, increasing investment spending and increasing the quantity demanded of aggregate output.
C) lead to a decrease in net exports, which causes the quantity demanded of aggregate output to decrease.
D) increase the real value of money balances which causes interest rates to increase, reducing the quantity demanded of aggregate output.
49) When the relative prices of Canadian-made goods go up, the result is
A) an increase in exports.
B) a decrease in exports.
C) a decrease in imports.
D) no net change in imports or exports.
50) A price level increase tends to reduce net exports, thereby reducing the amount of real goods and services purchased in Canada. Economists refer to this phenomenon as
A) the wealth effect.
B) the barrier effect.
C) the open-economy effect.
D) the GDP effect.
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