The following graph shows the aggregate demand (AD) curve in a hypothetical econ

Question

The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 140 and the quantity of output demanded is $300 billion. Moving down along the aggregate demand curve from point A to B, the price level falls to 120 and the quantity of output demanded rises to $500 billion. You can assume that the economy's money supply remains fixed. As the price level falls, the cost of borrowing money will causing the quantity of output demanded to This phenomenon is known as the effect. Additionally, as the price level falls, the impact on the domestic interest rate will cause the real value of the dollar to in foreign exchange markets. The number of domestic products purchased by foreigners (exports) will, therefore, , and the number of foreign products purchased by domestic consumers and firms (imports) will . Net exports will, therefore, , causing the quantity of domestic output demanded to . This phenomenon is known as the effect.

Explanation / Answer

Fall Rise Interest Rate Fall Rise Fall Rise Rise Exchange Rate

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