Suppose workers become pessimistic about their future employment, which causes them to save more and spend less. If the economy is on the intermediate range of the aggregate supply curve, then:
a. both real GDP and the price level will fall.
b. real GDP will fall and the price level will rise.
c. real GDP will rise and the price level will fall.
d. real GDP and the price level will rise.
Question 2
People learn to hold a specific quantity of money for the groceries, theater tickets, gasoline, clothes, film, and other items they habitually purchase. This behavior is representative of the:
a. precautionary demand.
b. speculative demand.
c. transactions demand.
d. volatility demand.
e. liquidity demand.
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