An Increase in the Price Level Causes

question 387

Multiple Choice

An increase in the price level causes

• A) reduced investment spending, because interest rates increase, but an increase in net exports as U.S. residents 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 U.S. goods induce foreigners to buy fewer American 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 U.S. 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:

State Lines

Geographical boundaries that separate individual states within a country, often influencing laws and regulations.

Foreign Corporation

A company incorporated under the laws of one country but doing business in another country, subject to specific regulatory and tax obligations.

Incorporated

The process of legally declaring a business as a corporation, which is recognized as a separate entity from its owners.

Legal Entity

An organization that has legal rights and obligations, including the ability to enter into contracts, sue, and be sued.