An Indirect Effect of an Increase in the Price Level

question 60

Multiple Choice

An indirect effect of an increase in the price level works through

• A) people substituting out of domestic goods and into foreign goods as exchange rates rise.
• B) changes in trade balances as domestic goods become more expensive, causing interest rates to move in the opposite direction from the change in the exchange rate.
• C) interest rates as people save more as the higher prices make their money balances less attractive.
• D) interest rates as people borrow to maintain their money balances, bidding up interest rates and reducing total planned real expenditures.

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Definitions:

Indifference Curve

A graphical representation showing combinations of goods or services among which a consumer is indifferent, signifying equal levels of utility.

Slope

The measure of the steepness or incline of a line, defined mathematically as the ratio of the vertical change to the horizontal change between two points on the line.

Corn Chips

A food product made from cornmeal, served as a snack or accompaniment, and can be relevant in discussions on consumer goods, manufacturing, and agricultural economics.

French Fries

Deep-fried potato strips, known for their crispy texture and often served as a side dish or snack, popularized in American and European cuisines.