Economics For Today
10th Edition
ISBN: 9781337613040
Author: Tucker
Publisher: Cengage Learning
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Question
Chapter 20, Problem 4SQ
To determine
The reason for the real balance effect.
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One explanation for the negative slope of the aggregate demand curve is the "wealth effect" (aka the "real‑balances" effect). What is this effect?
a. As inflation occurs, consumers buy fewer goods and services because the value of their accumulated wealth declines.
b. Interest rates increase when prices rise as consumers try to borrow larger amounts of money to maintain their consumption. The higher interest rate discourages spending.
c. As inflation occurs, the purchasing power of consumers increases as accumulated wealth increases in value.
d. For normal goods, people buy more of a product if their income increases.
According to the wealth effect, what happens as the price level falls?
a. Consumption spending decreases and investment spending increases.
b. Consumption spending decreases.
c. Consumption spending increases and investment spending decreases.
d. Consumption and investment spending increase.
e. Consumption and investment spending…
The reason/s for the downward aggregate demand curve include:
Select one:
a. interest rate effect
b. exports effect
c. real balances effect
d. none of the answers are correct
e. all the answers are correct
What is the relationship between the price level and the following components of aggregate demand?
a. There is (a negative/ no / a positive) relationship between the price level and consumption.
b. There is (a negative/no/ a positive) relationship between the price level and investment.
c. There is (a negative/no/ a positive) relationship between the price level and government spending.
d. There is (a negative/no/ a positive) relationship between the price level and net exports.
Chapter 20 Solutions
Economics For Today
Ch. 20.7 - Prob. 1YTECh. 20.A - Prob. 1SQPCh. 20.A - Prob. 2SQPCh. 20.A - Prob. 3SQPCh. 20.A - Prob. 4SQPCh. 20.A - Prob. 5SQPCh. 20.A - Prob. 6SQPCh. 20.A - Prob. 1SQCh. 20.A - Prob. 2SQCh. 20.A - Prob. 3SQ
Ch. 20.A - Prob. 4SQCh. 20.A - Prob. 5SQCh. 20.A - Prob. 6SQCh. 20.A - Prob. 7SQCh. 20.A - Prob. 8SQCh. 20.A - Prob. 9SQCh. 20.A - Prob. 10SQCh. 20.A - Prob. 11SQCh. 20.A - Prob. 12SQCh. 20.A - Prob. 13SQCh. 20.A - Prob. 14SQCh. 20.A - Prob. 15SQCh. 20.A - Prob. 16SQCh. 20.A - Prob. 17SQCh. 20.A - Prob. 18SQCh. 20.A - Prob. 19SQCh. 20.A - Prob. 20SQCh. 20 - Prob. 1SQPCh. 20 - Prob. 2SQPCh. 20 - Prob. 3SQPCh. 20 - Prob. 4SQPCh. 20 - Prob. 5SQPCh. 20 - Prob. 6SQPCh. 20 - Prob. 7SQPCh. 20 - Prob. 8SQPCh. 20 - Prob. 9SQPCh. 20 - Prob. 10SQPCh. 20 - Prob. 11SQPCh. 20 - Prob. 1SQCh. 20 - Prob. 2SQCh. 20 - Prob. 3SQCh. 20 - Prob. 4SQCh. 20 - Prob. 5SQCh. 20 - Prob. 6SQCh. 20 - Prob. 7SQCh. 20 - Prob. 8SQCh. 20 - Prob. 9SQCh. 20 - Prob. 10SQCh. 20 - Prob. 11SQCh. 20 - Prob. 12SQCh. 20 - Prob. 13SQCh. 20 - Prob. 14SQCh. 20 - Prob. 15SQCh. 20 - Prob. 16SQCh. 20 - Prob. 17SQCh. 20 - Prob. 18SQCh. 20 - Prob. 19SQCh. 20 - Prob. 20SQ
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Similar questions
- Aggregate demand and aggregate supply, based on a problem from “Principles of Economics” by N. Gregory Mankiw a) List the components of country’s GDP in an open economy. For each component, provide an example of an event that would cause a shift of the aggregate demand curve to the right.b) What will be the effect of such events on the level of prices and the real outcome in the short run? Provide a graph.c) What will be the effect of such events on the level of prices and the real outcome in the longrun? Update your grapharrow_forwardh A period during which aggregate output declines. A) Recession B) Expansion C) Inflationarrow_forward28. Which of the following are determinants of aggregate demand? Choose all that apply. A. a spike in net exports B. the Federal Reserve lowering its interest rates C. a change in technology D. growing consumer confidencearrow_forward
- B. Using aggregate demand and aggregate supply curves, explain why NAIRU is not in the vertical section of the aggregate supply curve. Make sure to label the axis.arrow_forwardWhich of the following leads to a rightward shift in the aggregate demand? a. General price level fall b. Rise in government spending c. General price level rise d. Fall in government spendingarrow_forwardAssume an economy operates in the intermediate range of its aggregate supplycurve. For each of the following changes in conditions, state the direction of theeffect on:1. aggregate demand, 2. aggregate supply, 3. price level, and 4. real GDP. a) The Central Bank increases the cash interest rate i need ans of this too.arrow_forward
- Determine whether the events below will cause the aggregate demand curve to shift to the left or to the right. Assume the price level remains constant. a. Government purchases increase by $2 billion. Aggregate demand shifts (Click to select) to the right to the left . b. Real interest rates increase. Aggregate demand shifts (Click to select) to the right to the left . c. Taxes increase. Aggregate demand shifts (Click to select) to the left to the right . d. Aggregate consumption decreases as consumer confidence falls. Aggregate demand shifts (Click to select) to the right to the left .arrow_forwardAssume an economy operates in the intermediate range of its aggregate supplycurve. For each of the following changes in conditions, state the direction of theeffect on: aggregate demand, aggregate supply, price level, real GDP.(a) A decrease in government expenditure in infrastructure(b) A severe recession occurs in a country which has been a major importer of thenation’s exports.(c) The federal government increases business taxes with diagramarrow_forwardThe aggregate demand curve shows the relationship between the volume of purchases and the price level. The aggregate demand curve is downward sloping because, ceteris paribus people are willing and able to buy more goods and services at lower average prices. Which of the following is a reason for the downward slope of the aggregate demand curve? A- The real balances effect B- The interest rate effect C- The foreign trade effect D- All of the abovearrow_forward
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