Holding the Level of Prices Fixed Implies That a Given

question 43

Multiple Choice

Holding the level of prices fixed implies that a given increase in aggregate demand

• A)will have a smaller effect on real GDP than would be the case if prices were more flexible.
• B)will have a larger effect on real GDP than would be the case if prices were more flexible.
• C)has the same effect on real GDP as when prices are more flexible.
• D)has a smaller effect on nominal GDP than when prices are more flexible.

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Definitions:

Market Equilibrium

A situation in a market when quantity supplied equals quantity demanded at a certain price level.

Fixed Exchange Rate

A system where the value of a currency is set to a specific rate against another currency or basket of currencies.

Currency Market Intervention

Involves central banks or other monetary authorities buying or selling currencies to influence exchange rates.

Foreign Exchange

Foreign Exchange involves the trading of currencies against one another, facilitating international trade and investment.