Multiple Choice increases Correct decreases may either increase or decrease offsets any change in Explanation All else equal, an increase in the nominal exchange rate … 13) Suppose there is an exogenous increase in the domestic price level. An exogenous fall in the domestic price level causes an increase in real wealth and A) a fall in desired investment. How does each of the following changes affect the real gross domestic product and price level of an open economy in the short run? 3. C) P times E, the domestic price level times the domestic price level. The term used to describe a percentage increase in a country’s price level over a period of time. D) P , the foreign price level. For a given domestic and foreign price level, an increase in the nominal exchange rate _____ the real exchange rate. Of increase, decrease, or stay the same, the effect on the equilibrium interest rate when the domestic price level decreases, ceteris paribus. An increase in the price level will: A) increase net exports: B) reduce the value of household debt and increase investment: C) increase production costs and reduce short-run aggregate supply: D) reduce the purchasing power of household wealth and reduce consumption: 2: Answer the next question using the following graph: (25.0K) Refer to the graph. ♦ same prediction as long run model without PPP 2. The Sum of the Price Level Effect: A lower price level increases autonomous con­sumption (the wealth effect), autonomous investment (the interest rate effect) … D) a downward shift of the net export function. Thus, an increase in the price level (i.e.,inflation) will cause an increase in average interest rates in an economy. E) P times E, the foreign price level times the nominal exchange rate The global increase in domestic violence during the lockdown period has received relatively little attention, though CNN recently reported on the increase south of the US border. B) E, the nominal exchange rate. Given the demand for good in the domestic market, the decrease in supply of goods will lead to increase in the price level. In contrast, a decrease in the price level ( deflation) will cause a decrease in average interest rates in an economy. Interest rates: a rise in the domestic interest rate ♦ lowers domestic money demand, ♦ increasing the domestic price level, B) a rise in desired consumption. Explain each. The domestic currency price of a representative foreign expenditure basket is A) P, the domestic price level. This means that a rise in the domestic price level will cause net expenditure on foreign goods to fall. B 9 Which of the individuals listed below would experience an increase in wealth? C) a downward shift in the AE curve. E) a fall in government purchases. In Mexico, federal lawmakers shut down most of its economy on March 23, urging people to stay indoors. 4. (a) An increase in the price of crude oil, an important natural resource (b) A technological change that increases the productivity of labor (c) An increase in spending by consumers The real GDP is the difference between nominal GDP and inflation rate. ♦ causes a proportional increase in the domestic price level, ♦ causing a proportional depreciation in the domestic currency (through PPP).