Economics For Today
Economics For Today
10th Edition
ISBN: 9781337670654
Author: Tucker
Publisher: Cengage
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Chapter 20, Problem 3SQ
To determine

The real balance effect on the people.

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The idea that higher prices reduce the purchasing power of financial assets and lead to less consumption and more saving is known as the A. Foreign purchases effect. B. Income effect. C. Aggregate demand effect. D. Real balances effect.
a. If nominal GDP rose, does that mean that production had to increase as well? Why or why not?An increase in nominal GDP means there must have been an increase in inputs. may have been due to an increase in the price level. means production must have increased. means production must have decreased.b. What about if real GDP increased?An increase in real GDP may have been due to an increase in the price level. means production must have increased because the price level is not held constant. means production must have decreased. means production must have increased because the price level is held constant.c. Why is it important to use real GDP when comparing changes over time?Changes in real GDP over time will accurately reflect changes in real production. should not be used. We should use changes in nominal GDP when analyzing changes over time. have a time lag, which helps us accurately predict business cycles. will include changes in the price level, which gives a complete picture.
The aggregate demand curve for an economy slopes downward because a decrease in the price level will:   A.increase the demand for money. B.put an upward pressure on interest rates. C.increase the purchasing power of money. D.make domestically produced goods more expensive relative to foreign goods.
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