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Determining the real-balances effect

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Reference no: EM131406839

For each of the following scenarios, determine whether the situation described can be attributed to the real-balances effect, the interest-rate effect, or the foreign-purchases effect.

As a result of an increase in the price level, the cost of borrowing increases, which causes people to buy fewer cars.

a) Interest-rate effect

b) Foreign-purchases effect

c) Real-balances effect

When the price level decreases, restaurants become busier as more people purchase restaurant meals.

a) Real-balances effect

b) Foreign-purchases effect

c) Interest-rate effect

Reference no: EM131406839

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