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Century 21 Accounting: General Journal11th EditionClaudia Bienias Gilbertson, Debra Gentene, Mark W Lehman 1,009 solutions How does an increase in the price level affect the quantity of real GDP supplied?When the price level rises and the money wage rate is constant, the real wage rate falls and employment increases. The quantity of real GDP supplied increases. When the price level falls and the money wage rate is constant, the real wage rate rises and employment decreases. The quantity of real GDP supplied decreases.
Does GDP increase when price level increases?This is because, in a world where inflation is increasing, people will spend more money because they know that it will be less valuable in the future. This causes further increases in GDP in the short term, bringing about further price increases. Also, the effects of inflation are not linear.
What happens to supply when price level increases?The law of supply states that a higher price leads to a higher quantity supplied and that a lower price leads to a lower quantity supplied.
What is the effect of an increase in the price level on the short run aggregate supply curve?Increases in the price of such inputs cause the SRAS curve to shift to the left, which means that at each given price level for outputs, a higher price for inputs will discourage production because it will reduce the possibilities for earning profits.
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