assignment 2 econ - Wisam Daifi Econ 201 April 16, 2008...

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Econ 201 April 16, 2008 Assignment #2 1. An increase in the price level would cause desired consumptions to go down because a change in price level produces a real-balances effect. Therefore an increase in price level erodes the purchasing power of such assets; the public is poorer in real terms and will reduce its spending. 2. Aggregate Demand Curve: a. Increase in money demanded will move the curve downward and shift to the right. This will reduce autonomous spending and equilibrium expenditures and real GDP. b. Increase in foreign income will cause net exports to go up, and consumption will also increase. c. Expectations of higher future inflation will have the Aggregate demand to go up, and consumption to also increase. 3. Major difference in assumption between long run and short run is that in the short run the price level can change, however the nominal wages are FIXED, and during long run it is a period of time which nominal input price can change. They are FLEXIBLE. 4.
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assignment 2 econ - Wisam Daifi Econ 201 April 16, 2008...

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