An Increase in the Price Level Causes

question 101

Multiple Choice

An increase in the price level causes

• A)reduced investment spending because interest rates increase,but an increase in net exports as Canadians buy fewer imports.The change in investment is usually greater than the change in net exports.
• B)a reduction in net exports as higher priced Canadian goods induce foreigners to buy fewer Canadian products,and an increase in investment spending as the higher prices make businesses more profitable.
• C)reduced investment spending because interest rates increase and a decrease in net exports as the higher prices induce foreigners to buy fewer Canadian goods.
• D)increased government spending which crowds out investment spending so that the net effect on aggregate demand is nil.

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Definitions:

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