Question

Which of the following can lead to increasing GDP and decreasing price level? A decrease in...

Which of the following can lead to increasing GDP and decreasing price level?


A decrease in the money supply
A increase in government spending
A prolonged increase in oil prices
A decrease in government spending
An usually severe drought affecting crops
A steep fall in nominal wages

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Answer #1

Decrease in money supply shifts aggregate demand to the left. The decrease in aggregate demand causes both output and price level to fall

Increase in government spending shifts aggregate demand to right. The increase in aggregate demand causes both output and price level to rise

Prolonged increase in oil prices will shift aggregate supply curve to the left. The decrease in aggregate supply causes output to fall and price level to rise

Decrease in government spending shifts aggregate demand to left. The decrease in aggregate demand causes both output and price level to fall

A drought that destroys crops. The reduction in food supply pushes up food prices and aggregate supply to left. The decrease in aggregate supply causes output to fall and price level to rise.

Steep fall in nominal wages reduces costs for producers and aggregate supply to left. The increase in aggregate supply causes output to rise and price level to fall

only fall in nominal wages can lead to increasing GDP and decreasing price level

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