Author Question: A shift in the aggregate planned expenditure curve as a result of an increase in the price level ... (Read 106 times)

Frost2351 · **on:** Jun 29, 2018

A shift in the aggregate planned expenditure curve as a result of an increase in the price level results in

A) no movement along the aggregate demand curve and no shift in the aggregate demand curve.
B) an upward movement along the aggregate demand curve.
C) a downward movement along the aggregate demand curve.
D) a rightward shift in the aggregate demand curve.
E) a leftward shift in the aggregate demand curve.

Question 2

Explain the shoe-leather costs of inflation.

What will be an ideal response?

annierak · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

B

Answer to Question 2

When prices rise rapidly during anticipated inflation, people with money spend time finding goods to purchase to get rid of money. Households and firms also spend time finding others to barter goods for goods and spend time watching foreign exchange rates to be able to trade falling value domestic currency for constant value foreign currencies. These activities are costly, in part because they force people to spend time dealing with the rapidly falling value of money. The costs that people incur from running around to get rid of money are the shoe-leather costs.