Which of the following could create an increase in the price level and a reduction in real GDP?
A)a fall in stock prices
B)natural disasters such as hurricanes and famines
C)declining government expenditures
D)tax rebates

Question

Quizplus · Accepted Answer

Natural disasters can cause a reduction in production and supply of goods and services, leading to an increase in prices as demand remains the same or increases. The reduction in production and supply would also result in a decrease in real GDP. A fall in stock prices (A) would affect wealth and consumption, but not necessarily cause a decrease in real GDP or increase in prices. Declining government expenditures (C) would reduce demand in the economy, causing a decrease in prices and possibly a decrease in real GDP. Tax rebates (D) would increase disposable income and consumption, leading to an increase in demand, prices, and real GDP.

Which of the Following Could Create an Increase in the Price