When the price level increases, aggregate planned expenditure ...

[bobbie]

When the price level increases, aggregate planned expenditure increases and equilibrium expenditure increases. Is the preceding statement correct or incorrect? Briefly explain your answer.
 
  What will be an ideal response?

Question 2

In the short run, if the economy is at full employment, then the quantity of real GDP
 
  A) is equal to potential GDP, and the unemployment rate is equal to the natural unemployment rate.
  B) does not necessarily equal potential GDP, but the unemployment rate is equal to the natural unemployment rate.
  C) is equal to potential GDP, but the unemployment rate does not necessarily equal the natural unemployment rate.
  D) is equal to potential GDP, but the unemployment rate is less than the natural unemployment rate.
  E) exceeds potential GDP, and the unemployment rate is less than the natural unemployment rate.

[skipfourms123]

Answer to Question 1

The statement is incorrect. An increase in the price level decreases aggregate planned expenditure because the purchasing power of money falls, the real interest rises, and the price of imports become less expensive relative to domestically produced goods. Because aggregate planned expenditure decreases, equilibrium expenditure decreases.

Answer to Question 2

A

[bobbie]

Correct answers!

[skipfourms123]

Great! Please up vote