As the Price Level Rises Relative to Costs and the Real

question 25

Multiple Choice

As the price level rises relative to costs and the real wage rate falls, profits _{--------------------}and the number of firms in business _{--------------------}.

• A)decrease; decreases
• B)decrease; increases
• C)do not change; do not change
• D)increase; increases
• E)increase; decreases

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Definitions:

Housing Prices

denote the value assigned to residential properties and homes, which fluctuate based on factors like location, demand, economic conditions, and interest rates.

Housing Bubble

An economic condition characterized by rapid increases in the valuations of real property until they reach unsustainable levels followed by a sharp decline.

Real Terms

Values adjusted for inflation, reflecting the actual purchasing power.

Behavioral Economics

The study of psychology as it relates to the economic decision-making processes of individuals and institutions.