Financial Crisis
Suppose that banks are less able to raise funds and so lend less. Consequently, because people and households are less able to borrow, they spend less at any given price level than they would otherwise. The crisis is persistent so lending should remain depressed for some time.
-Refer to Financial Crisis. What happens to the price level and real GDP in the short run?
A)both the price level and real GDP rise
B)the the price level level rises and real GDP falls
C)the the price level level falls and real GDP rises
D)both the price level and real GDP fall

Question

Quizplus · Accepted Answer

In the short run, a decrease in lending leads to reduced spending, which decreases aggregate demand. This results in both a lower price level and a decrease in real GDP.

Financial Crisis Suppose That Banks Are Less Able to Raise Funds and Funds