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As the price level falls, the purchasing power of households' real wealth will rise remain the same . This phenomenon is known as the exchange rate interest rate wealth fall rise remain the same fall effect.

As the price level falls, the purchasing power of households' real wealth will rise remain the same . This phenomenon is known as the exchange rate interest rate wealth fall rise remain the same fall effect.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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100 90 0 100 200 300 400 500 600 700 800 REAL GDP (Billions of dollars) rise remain the same fall As the price level falls, the purchasing power of households' real wealth will rise . This phenomenon is known as the remain the same exchange rate interest rate wealth fall rise fall When an economy's price level falls, ceteris paribus, the domestic price level relative to the price level in other countries will ▼. This means that less less domestic exports will be relatively expensive than before, while foreign imports will be relatively expensive than they were previously. The more number of domestic products purchased by foreigners (exports) will therefore_rise, remain the same, and the number of foreign products purchased rise, remain the same fall rise, remain the same, Net exports will therefore fall fall , causing the quantity of by domestic consumers and firms (imports) will rise, remain the same, fall domestic output demanded to , causing the quantity of output demanded to effect. interest rate This phenomenon is known as the open economy wealth effect. ▼
Transcribed Image Text:100 90 0 100 200 300 400 500 600 700 800 REAL GDP (Billions of dollars) rise remain the same fall As the price level falls, the purchasing power of households' real wealth will rise . This phenomenon is known as the remain the same exchange rate interest rate wealth fall rise fall When an economy's price level falls, ceteris paribus, the domestic price level relative to the price level in other countries will ▼. This means that less less domestic exports will be relatively expensive than before, while foreign imports will be relatively expensive than they were previously. The more number of domestic products purchased by foreigners (exports) will therefore_rise, remain the same, and the number of foreign products purchased rise, remain the same fall rise, remain the same, Net exports will therefore fall fall , causing the quantity of by domestic consumers and firms (imports) will rise, remain the same, fall domestic output demanded to , causing the quantity of output demanded to effect. interest rate This phenomenon is known as the open economy wealth effect. ▼
The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 140, and the quantity of output demanded is $300 billion. Moving down along the aggregate demand curve from point A to point B, the price level falls to 120, and the quantity of output demanded rises to $500 billion. PRICE LEVEL 170 160 150 140 130 120 110 100 90 0 100 A 1 B 200 300 400 500 REAL GDP (Billions of dollars) AD 600 700 800 ?
Transcribed Image Text:The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 140, and the quantity of output demanded is $300 billion. Moving down along the aggregate demand curve from point A to point B, the price level falls to 120, and the quantity of output demanded rises to $500 billion. PRICE LEVEL 170 160 150 140 130 120 110 100 90 0 100 A 1 B 200 300 400 500 REAL GDP (Billions of dollars) AD 600 700 800 ?
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