The exchange rate has an important relationship to the price level because it represents a link between domestic prices and foreign prices. • What are the other factors z?One example is unemployment insurance. Support is a price level where a downtrend can be expected to pause due to a concentration of demand or buying interest. The higher nominal interest rate increases the cost of holding money and therefore reduces the demand for real money balances. Short Run Aggregate Supply shifts left The highest price level among EU Member States was observed in Denmark, 41% above the EU average, while in Bulgaria the price level was 47% below the EU average. A support level is the price at which a stock generates interest from a sufficient number of buyers to cause a price spike. As technical indicators go, a resistance level takes some of the ambiguity out of trading. In the long run, the changes in the expected price level will not affect the aggregate supply because the period will be long enough to materialize the expected and actual price levels. A higher price level increases output, if the expected price level does not change, since the real wage rate decreases. This 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. This is expected to offset price increases caused by bottlenecks in the supply chain. PPP: gross domestic product at purchasing power parity adjusts for price level differences across countries, providing a better measure of the volume of goods and services produced. of an important natural resource. Why is a resistance level significant? Unexpected increase in the price. If the price level turns out to be 130 à producers supply the economy’s potential output à unemployment is at the natural rate. Other examples of z include the minimum wage. increases consumption spending) ... workers and firms must increase prices and wages to compensate for inflation/increased price level) Term. (Because: optimism on expected income . If there is no unemployment insurance, then you would be willing to accept very low wages to avoid being unemployed. The long-run curve is unaffected by a change in the expected price level or the actual price level. The interactive graph below (Figure 2) shows the aggregate supply curve shifting to the left, from SRAS 0 to SRAS 1 … So, option 'b' is correct. Definition. • Why does the expected price level P e matter (not the actual price level P)? Because the Fed has not changed the quantity of money available today, the reduced demand for real money balances leads to a higher price level. Suppose the expected price level is 130. The correct answer is D. 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