Consider Monetary Equilibrium and the Monetary Transmission Mechanism

question 126

Multiple Choice

Consider monetary equilibrium and the monetary transmission mechanism.An exogenous fall in the price level will lead to

• A)an excess demand for money resulting in a rise in the rate of interest,which shifts the AE function downward and decreases the equilibrium level of income.
• B)an excess supply of money resulting in a fall in the rate of interest,which shifts the AE function upward and increases the equilibrium level of income.
• C)people being able to buy more with their increased wealth,which will shift the AE function downward and decrease the equilibrium level of income.
• D)a movement to the right along the AE function.
• E)a movement to the left along the AE function.

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Definitions:

Marginal Cost

The augmentation in total expenditure resulting from the manufacture of one more unit of a product or service.

Price

Price refers to the amount of money expected, required, or given in payment for something, representing the value exchange between buyer and seller in a market.

Kinked Demand

A demand curve that has a distinct bend or "kink" at a certain price level, reflecting different elasticity above and below that price.

Marginal Cost

The increase in cost resulting from the production of an extra unit of a good or service.