The real wealth effect provides a partial explanation for why the aggregate demand curve slopes downward. Which of the following statements best explains the real wealth effect?
A. At a lower price level domestically produced items are relatively less expensive than foreign goods and therefore are in greater demand.
B. At a lower price level the real interest rate tends to be lower, and thus the quantity of investment goods demanded is larger.
C. At a lower price level consumers will buy less because of a reduction in the real money supply.
D. At a lower price level the purchasing power of accumulated savings is larger, and thus consumers will purchase more goods.
D. At a lower price level the purchasing power of accumulated savings is larger, and thus consumers will purchase more goods.
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Consider two situations: In situation A the production of widgets is monopolized by a single firm. In situation B the production of widgets is perfectly competitive. In both situations the supply of labor to widget makers is infinitely elastic at a wage of w. Which of the following statements is true?
a. The marginal value product of labor will be the same in the two cases. b. The marginal value product of labor is higher in case B than in case A. c. The marginal value product of labor is higher in case A than in case B. d. From the information given it is not possible to make a definite statement about the marginal value product of labor.
In the long run, firms in many industries often experience a falling average total cost curve as a result of:
A. gains through trade. B. increasing marginal returns. C. economies of scale. D. lower fixed costs.
Assume policy makers in a fixed exchange rate regime decide to peg the exchange rate at a lower level. This is called
A) a devaluation. B) a revaluation. C) a depreciation. D) an appreciation.
During a bank crisis:
A. a bank will go to the central bank for a loan before going to other banks. B. it is easy to determine the market prices of bank's assets. C. officials at the Federal Reserve find it easy to sort out solvent from insolvent banks. D. it is important for regulators to be able to distinguish insolvent from illiquid banks.