ch 10 true and false

ch 10 true and false - Question 1 0 out of 1 points...

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Question 1 0 out of 1 points Aggregate demand reflects a positive relationship between the price level and the amount of real output demanded. Selected Answer: True Correct Answer: False Feedback: This is false. The relationshi p between the two is inverse, so that a lower price level results in a higher quantity of real output demanded , and vice versa. See p. 188, especially Figure 10.1. Question 2 1 out of 1 points The explanation as to why the aggregate demand curve slopes downward is the same as the explanation as to why the demand curve for a single product slopes downward. Selected Answer: False Correct Answer: False
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Feedback: Correct, this is false. The reasons for a downward- sloping aggregate demand curve differ from the reason for a downward- sloping demand curve for a particular product. In single product markets, lower prices encourage consumers to purchase a larger quantity because their incomes go further (the "income effect"). In the aggregate, however, a lower price level results in less income flowing to the sellers of domestic output. As a result, lower price levels may not result in a income effect similar to what occurs in single product markets. The substitutio n effect in single product
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Question 3 1 out of 1 points A fall in the price level increases the real value of financial assets with fixed money values and, as a result, increases spending by the holders of these assets. Selected Answer: True Correct Answer: True Feedback: Correct. A lower price level will make consumers feel richer because their accumulat ed savings has a greater purchasing power, and as a result, spending increases. This is known as the real- balances effect. See p. 188- 189. Question 4 0 out of 1 points Given a fixed supply of money, a rise in the price level increases the demand for money in the economy and drives interest rates downward.
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Selected Answer: True Correct Answer: False Feedback: This is false. Higher price levels mean that consumers will need more money to buy the same amount of goods that they did previously. The increase in the demand for money will increase interest rates, which are the "price" of money. It is these higher interest rates which cause the quantity demanded of real domestic output to fall. This is the interest- rate effect, described on p. 189.
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Question 5 1 out of 1 points A rise in the price level of an economy (relative to foreign price levels) tends to increase that economy's exports and to reduce its imports of goods and services. Selected
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This note was uploaded on 09/10/2009 for the course ECO 2251 taught by Professor Kirkland during the Spring '09 term at Troy.

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ch 10 true and false - Question 1 0 out of 1 points...

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