The term used to describe a percentage increase in a country’s price level over a period of time. 13) Suppose there is an exogenous increase in the domestic price level. This means that a rise in the domestic price level will cause net expenditure on foreign goods to fall. E) P times E, the foreign price level times the nominal exchange rate Of increase, decrease, or stay the same, the effect on the equilibrium interest rate when the domestic price level decreases, ceteris paribus. An exogenous fall in the domestic price level causes an increase in real wealth and A) a fall in desired investment. Given the demand for good in the domestic market, the decrease in supply of goods will lead to increase in the price level. Which of the individuals listed below would experience an increase in wealth? E) a fall in government purchases. Thus, an increase in the price level (i.e.,inflation) will cause an increase in average interest rates in an economy. D) P , the foreign price level. For a given domestic and foreign price level, an increase in the nominal exchange rate _____ the real exchange rate. ♦ causes a proportional increase in the domestic price level, ♦ causing a proportional depreciation in the domestic currency (through PPP). The Sum of the Price Level Effect: A lower price level increases autonomous con­sumption (the wealth effect), autonomous investment (the interest rate effect) … C) P times E, the domestic price level times the domestic price level. The domestic currency price of a representative foreign expenditure basket is A) P, the domestic price level. An increase in the price level will: A) increase net exports: B) reduce the value of household debt and increase investment: C) increase production costs and reduce short-run aggregate supply: D) reduce the purchasing power of household wealth and reduce consumption: 2: Answer the next question using the following graph: (25.0K) Refer to the graph. ♦ same prediction as long run model without PPP 2. In Mexico, federal lawmakers shut down most of its economy on March 23, urging people to stay indoors. Multiple Choice increases Correct decreases may either increase or decrease offsets any change in Explanation All else equal, an increase in the nominal exchange rate … In contrast, a decrease in the price level ( deflation) will cause a decrease in average interest rates in an economy. C) a downward shift in the AE curve. How does each of the following changes affect the real gross domestic product and price level of an open economy in the short run? B) E, the nominal exchange rate. 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