Which of the following is NOT a response that would result from a decrease in the price level and so help to explain the slope of the aggregate demand curve?
A)When interest rates fall, Sleepwell Hotels decides to build some new hotels.
B)The exchange rate falls, so French restaurants in Paris buy more Canadian beef.
C)Janet feels wealthier because of the price drop, and so she decides to remodel her bathroom.
D)With prices down and wages fixed by contract, Gatekeeper Computers decides to lay off workers.

Question

Quizplus · Accepted Answer

A decrease in the price level would lead to a decrease in the cost of production, which would allow firms to increase their output without the need for additional workers. Therefore, laying off workers would not be a normal response to a decrease in the price level, which is why option D is the correct answer. Options A, B, and C all describe situations where the decrease in the price level leads to increased spending, which is a typical response that helps to explain the downward slope of the aggregate demand curve.

Which of the Following Is NOT a Response That Would