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In the aggregate demand-aggregate supply model, an increase in the price level will Select one: a. decrease the money supply, raise the interest rate, reduce aggregate expenditure, and decrease real GDP b. decrease money demand, lower the interest rate, increase aggregate expenditure, and increase real GDP c. not change money supply, money demand or the interest rate, but will shift the aggregate demand curve to the right d. increase money demand, raise the interest rate, reduce aggregate expenditure, and decrease equilibrium real GDP e. increase the money supply, lower the interest rate, increase aggregate expenditure, and increase real GDP

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In the aggregate demand-aggregate supply model, an increase in the price level will
Select one:
a. decrease the money supply, raise the interest rate, reduce aggregate expenditure, and decrease real GDP
b. decrease money demand, lower the interest rate, increase aggregate expenditure, and increase real GDP
c. not change money supply, money demand or the interest rate, but will shift the aggregate demand curve to the right
d. increase money demand, raise the interest rate, reduce aggregate expenditure, and decrease equilibrium real GDP
e. increase the money supply, lower the interest rate, increase aggregate expenditure, and increase real GDP

✅ Answers (1)

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Private answer
  • In the aggregate demand-aggregate supply model, an increase in the price level will
    e. increase the money supply, lower the interest rate, increase aggregate expenditure, and increase real GDP
  • When there is an increase in price level, the currency loses its purchasing power and hence real quantity of money increases. This in turn increases demand for money and eventually higher capital investment and more aggregate expenditure.
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Answered on June 24, 2020 3:08 pm

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