
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Consider the figure to the right. What are the three effects of decreases in the
price level, and do these generate upward or downward movements along the
economy's aggregate demand curve?
The three effects of changes in the price level are
A. the real-balance effect, the income effect, and the wealth effect.
B. the substitution effect, the income effect, and the wealth effect.
ⒸC. the real-balance effect, the interest rate effect, and the open economy
effect.
OD. the real-balance effect, the interest rate effect, and the wealth effect.
When the price level falls, these three effects work together to generate
downward movements along the economy's aggregate demand curve.
4
Price Level
120
115
110
16 17 18
Real GDP per Year (3 trillions)
AD
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