Figure 24-1 -Refer to Figure 24-1.Ceteris Paribus,an Increase in the Price Level

question 117

Multiple Choice

Figure 24-1
-Refer to Figure 24-1.Ceteris paribus,an increase in the price level would be represented by a movement from

• A)AD1 to AD2.
• B)AD2 to AD1.
• C)point A to point B.
• D)point B to point A.

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Definitions:

Consumer Preferences

The subjective tastes and likes that govern the choices made by consumers regarding the purchase of various goods and services.

Purchasing-Power Parity

A theory that states that in the absence of transaction costs and barriers to trade, the exchange rate between two currencies should equalize the purchasing power of the two currencies.

Nominal Exchange Rate

The rate at which one currency can be exchanged for another currency, without adjusting for inflation differences between the two countries.

Real Exchange Rate

A measure that compares the relative price of a basket of goods between two countries, adjusted for currency exchange rates.