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Consider the Relationship Between the Price Level, the Money Market

Question 83

Multiple Choice

Consider the relationship between the price level, the money market, and the position of the economy's AE curve. If the price level falls exogenously, this will lead to


A) a movement to the right along the AE function.
B) an excess demand for money resulting in a rise in the rate of interest, which shifts the AE function downward and decreases the equilibrium level of income.
C) an excess supply of money resulting in a fall in the rate of interest, which shifts the AE upward and increases the equilibrium level of income.
D) people being able to buy more with their increased wealth, which will shift the AE function downward and decrease the equilibrium level of income.
E) a movement to the left along the AE function.

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