Which of these statements correctly explains the shape of the aggregate demand curve?
a. As prices fall, nominal income rises and so does the demand for real goods and services.
b. Rising prices reduce people's wealth and thereby decrease spending.
c. With falling prices, government decides to spend less to increase the price level.
d. Businesses increase investment spending in response to higher interest rates caused by inflation.
e. As prices fall, domestically produced goods become more expensive relative to foreign goods, resulting in an increase in production.
Question 2
An increase in marginal cost that remains within the gap of the marginal revenue curve of a kinked demand oligopolist will:
a. keep price and output the same.
b. raise price and decrease output.
c. lower price and increase output.
d. raise price and raise output.
e. lower price and lower output.
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