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Aggregate Demand Curve Economics Help

 
 
Reply Sun 8 Dec, 2013 03:45 pm
As the price level rises, the cost of borrowing money will (Rise/Decline/Remain the Same), causing the quantity of output demanded to (Rise/Decline/Remain the Same). This phenomenon is known as the (Interest Rate/Wealth/Exchange Rate) effect.

Additionally, as the price level rises, the impact on the domestic interest rate will cause the real value of the dollar to (Decline/Increase) in foreign exchange markets. The number of domestic products purchases by foreigners (exports) will therefore (Rise/Decline/Remain the Same), and the number of foreign products purchased by domestic consumers and firms (imports) will (Rise/Fall/Remain the Same). Net exports will therefore (Rise/Fall/Remain the Same), causing the quantity of domestic output demanded to (Rise/Decline/Remain the Same). This phenomenon is known as the (Interest Rate/Wealth/Exchange Rate).

Any help selecting the correct answers would be greatly appreciated!
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Type: Question • Score: 1 • Views: 11,624 • Replies: 8
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cicerone imposter
 
  0  
Reply Tue 31 Dec, 2013 01:43 pm
@Marshmallow,
Are you studying macro-economics?

The statements you pose can't be answered by the variables you identified, because the rise and fall of money varies with many things including the economies of the world, and not just one country's impact. Just look at what's happened to Greece and Spain's price rises based on their governments high deficits. Although Greece's economy has closed many businesses in Greece, tourism still attracts people to their country, and those catering to the tourism industry has and will survive.

All economies has the rich, middle class and the poor; it's a matter of degree.

Although salaries have remained somewhat stagnant in the US, many people are still buying homes and cars at increasing levels. Interest rates have remained somewhat low based on historical rates. The same with the savings rate; it's remained very low. Price increases of homes in many cities have been increasing at double digit rates during the past several years with not much impact on interest rates.

There is no way to measure economic trends, because all the variables that needs to be measure are always in flux, and one can find contradictions in any position taken.

That's the reason why Economics is an art and not science.

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econowaughAP
 
  1  
Reply Thu 16 Mar, 2017 12:26 pm
@Marshmallow,
This is an AP economics question. (Yes) It can be answered for the exam.

As the price level rises, the cost of borrowing money will (Rise), causing the quantity of output demanded to (Decline). This phenomenon is known as the (Interest Rate) effect.

*As prices rise banks will increase the rates of interest on loans.
*As the price level, PL increases people buy less, output demanded decreases
*Interest Rate Effect = reason the AD curve slopes down
*Interest Rate Effect - ↑PL ↑Dm ↑Ir→ ↓I & ↓C

Additionally, as the price level rises "think inflation" rises, the impact on the domestic interest rate will cause the real value of the dollar to (Decline) in the foreign exchange market (FOREX)

* As the PL rises our domestic goods are now more expensive, therefore exports decline, meaning that there is less demand in the FOREX for out currency.
Less demand means a weaker (less value) for our currency.

The number of domestic products purchased by foreigners "exports" will therefore, (Decline), and the number of foreign products purchased by domestic consumers & firms "imports" will (Rise).

*If the PL is increasing then the price of our goods are increasing, and less of our goods (Exports) will be purchased as they are now relatively more expensive.
*If domestic goods are relatively more expensive than foreign goods we can expect consumers to buy cheaper foreign goods, imports increase.

Net Exports will therefore (Fall), causing the quantity of domestic output to (Decline). This phenomenon is known as the (Exchange Rate) effect.

* Net Exports = Exports - Imports,, If imports increase net exports will fall
*AD = C + I + G + Xn,, so if Xn decreases, AD will decrease, output decreases
*Exchange Rate Effect = Reason the AD curve slopes down
*Exchange Rate Effect - ↑PL → ↓exports (seem more expensive) & ↑imports (seem cheaper) → ↓Xn


cicerone imposter
 
  -1  
Reply Thu 16 Mar, 2017 07:24 pm
@econowaughAP,
You said, "as prices rise, banks will raise the interest rates." False.
When you say, "when prices rise," it's determined by the consumer's credit rating as much as the federal funds rate.
http://www.bankrate.com/finance/auto/9-steps-to-a-car-loan-on-damaged-credit-1.aspx
econowaughAP
 
  1  
Reply Sun 10 Sep, 2017 08:22 pm
@cicerone imposter,
Cicerone imposter,
You ninny.
The fact is that the question above is answered a certain way for the AP economics exam and I answered it correctly.
The fact that you (and I) know that the real world is sloppy and multifaceted and
many things influence many other things isn't helpful when the person requests help for a freaking AP exam.
The question above is also speaking for all interests rates or the general interest rates in the economy,, it's from a macro economics class.
Charles

0 Replies
 
cicerone imposter
 
  -1  
Reply Mon 11 Sep, 2017 01:54 pm
@econowaughAP,
The exam is then in error. You cannot measure economics with mathematical models, because nothing remains static. That's the reason economics is an art, and not science. Do you understand why the stock market has winners and losers? It's not only about supply and demand, but monetary policies and the change in currency rates. Warren Buffett seems to understand economics pretty well based on his wealth. His biggest booboo seems to be IBM where he lost $2 billion, but he still has faith in the company. Our investments are with Vanguard funds which has returned over 12% this past year. I'm satisfied with our total returns with Vanguard since we started investing several decades ago.
I studied Economics in college, and try to keep abreast of the world's financial news with a concentration on how the US economy is doing. The US economy grew at 2.6% last quarter; pretty healthy compared to the rest of the world, since 70% of our economy is based on consumer spending. I only wish the Euro countries economy were more stable and growing, because they are an important trading partner. It's good to know that Spain is recovering to pre-recession levels. I think Greece will remain a basket case for many more years.
cicerone imposter
 
  -1  
Reply Mon 11 Sep, 2017 02:14 pm
@cicerone imposter,
Why predictions of the economy doesn't work.
https://www.worldfinance.com/comment/the-problem-with-predictions-2
0 Replies
 
cicerone imposter
 
  0  
Reply Sat 16 Sep, 2017 07:14 pm
@Marshmallow,
I'm not the ninny; you are. Did you really study Economics? There is no mathematical model to predict any economy, because nothing is static. Even past economic activity is frequently revised. Those are the facts. If you hate facts, please continue on with your ignorance.
cicerone imposter
 
  0  
Reply Sat 16 Sep, 2017 07:33 pm
@cicerone imposter,
Here's an article on what income makes it into "middle class" by state.
https://www.cnbc.com/2017/03/30/how-much-you-have-to-earn-to-be-considered-middle-class-in-every-state.html
The whole article is false. It doesn't take a genius to figure out that living in a rural area is not the same as living in some of the most expensive cities in California. A $100,000 income is Fresno is not the same as living in San Francisco.
0 Replies
 
 

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