Consider a simple macro model with a given price level and demand-determined output.An exogenous change in the domestic price level changes equilibrium real GDP
A)in the same direction.
B)in the opposite direction.
C)by the same amount in the same direction.
D)by the same amount in the opposite direction.
E)by a lesser amount in either direction.

Question

Quizplus · Accepted Answer

According to the inverse relationship between price level and quantity demanded, an increase in the price level would result in a decrease in demand and therefore a decrease in equilibrium real GDP. Similarly, a decrease in the price level would lead to an increase in demand and an increase in equilibrium real GDP. Therefore, a change in the domestic price level would result in a change in equilibrium real GDP in the opposite direction.

Consider a Simple Macro Model with a Given Price Level