How Do Open-Market Purchases Affect the Price Level and Real

question 8

Multiple Choice

How do open-market purchases affect the price level and real GDP?

• A) They increase the price level and real GDP.
• B) They decrease the price level and real GDP.
• C) They increase the price level and decrease real GDP.
• D) They decrease the price level and increase real GDP.

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Definitions:

Real Interest Rate

The interest rate that has been adjusted to remove the effects of inflation, reflecting the real cost of funds to the borrower and the real yield to the lender.

Inflation

The rate of increase in the general price level for goods and services, leading to a decline in buying power.

Inflation

The pace at which the average price for goods and services climbs, weakening the capacity to purchase.

Uncertainty

A situation where the outcomes or consequences of an action, decision, or event are unknown.