Fill in the blanks in the following explanationsa The real w

Fill in the blanks in the following explanations:a. The real wealth effect is described by the following: An increase in the price level leads to a(n) __________ in real wealth, which leads to a(n) __________ in purchasing power, which leads to a(n) __________ in RGDP demanded.b. The interest rate effect is described by the following: A decrease in the price level leads to a(n) __________ in the interest rate, which leads to a(n) __________ in investments, which leads to a(n) ___________ in RGDP demanded.c. The open economy effect is described by the following: An increase in the price level leads to a(n) __________ in the demand for domestic goods, which leads to a(n) __________ in RGDP demanded.

Solution

a. The real wealth effect is described by the following: An increase in the price level leads to a decrease in real wealth, which leads to a decrease in purchasing power, which leads to a decrease in RGDP demanded.

b. The interest rate effect is described by the following: A decrease in the price level leads to a decrease in the interest rate, which leads to an increase in investments, which leads to an increase in RGDP demanded.

c. The open economy effect is described by the following: An increase in the price level leads to a decrease in the demand for domestic goods, which leads to a decrease in RGDP demanded.

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