Unanticipated and Unexpected Price Level Changes

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Unanticipated or Unexpected Price Level Changes

Shafonia Johnson

Grantham University

Unanticipated or Unexpected Price Level Changes The three reasons a lower price level leads to an increase of goods and services are an increase in the purchasing power of money, reduction in the demand for money and lower real interest rate and the making domestic produced goods less expensive (Gwartney, Stroup, Sobel & Macpherson,, 2013, p. 177). With an unexpected 3 percent fall in the price level in the goods and services market consumers’ money will increase in purchase power. Consumers will have the opportunity to purchase more and be wealthier. This is with the assumption that “the supply of money is fixed” (Gwartney, et al, 2013, p. 177). Therefore, this power will enable the purchase of more goods and services. The lower price level reduces the demand for money and lowers interest rates. Allowing consumers and businesses to have a smaller amount of money in the bank and still have everything they need. In retrospect businesses will need less money to sustain employee wages, pay taxes and any other business needs. This lower price level gives better opportunity to obtain assets that have high returns. Consumers will be able to purchase those non-necessity items such as cars and businesses can obtain new contracts or expand. American products will be chosen for purchase over products made abroad because of the lower price. This will in turn cause other countries to purchase more from the United States due to the lower price. In retrospect, the rising of the…...

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