An indirect effect of an increase in the price level works through
A) changes in trade balances as domestic goods become more expensive, causing interest rates to move in the opposite direction from the change in the exchange rate.
B) interest rates as people save more as the higher prices make their money balances less attractive.
C) people substituting out of domestic goods and into foreign goods as exchange rates rise.
D) interest rates as people borrow to maintain their money balances, bidding up interest rates and reducing total planned real expenditures.
D
You might also like to view...
The "trickle down" theory is based on the notion of multiplier effects
Indicate whether the statement is true or false
Jacob and Mason go to a diner that sells burritos for $5 and tacos for $3 . They agree to split the lunch bill evenly. Mason chooses a taco. The marginal cost to Jacob of ordering a burrito instead of a taco is
a. $1. b. $2. c. $2.50. d. $3.
If the U.S. dollar appreciates, it means that
a. the domestic price level has declined. b. the domestic purchasing power of the dollar has decreased. c. fewer U.S. dollars are required to purchase foreign currencies. d. more U.S. dollars are required to purchase foreign currencies.
Using Figure 1 above, if the aggregate demand curve shifts from AD2 to AD1 the result in the long run would be:
A. P4 and Y1. B. P4 and Y2. C. P5 and Y1. D. P5 and Y2.