Which of the following accurately explain why aggregate demand is inversely related to the price level?Check all that apply.

1. An increase in the demand for money at higher price levels leads to higher interest rates, which discourages investment and consumption.
2. A fall in prices decreases the real wealth of people holding money, which reduces consumption.
3. A fall in the prices of domestic goods relative to those of foreign goods encourages imports, thus decreasing net exports.
4. An increase in prices decreases the real wealth of people holding money, which discourages consumption.

Which of the following accurately explains why the long-runaggregate supply curve is vertical?

1. In the long run, once people have had time to adjust their long-term commitments, an increase in supply and a higher price level will no longer incentivize firms to expand the quantity demanded.
2. In the long run, once people have had time to adjust their long-term commitments, an increase in demand and a higher price level will no longer incentivize firms to expand the quantity of goods and services supplied.

Why does the short-runaggregate supply curve slope upward to the right?

1. An unanticipated increase in the price level will improve the profitability of firms, which will an expansion in output.
2. An unanticipated increase in the price level will decrease the profitability of firms, which will cut production.

Evaluate the following statement.True or False: The money interest rateis the percentage of the amount borrowed that must be paid to the lender in addition to the repayment of the principal. The real interest ratereflects the actual burden to borrowers and the payoff to lenders after accounting for the impact of inflation.

1. True
2. False