Question

Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve? a. With prices down and wages fixed by contract, Fargo Concrete Company decides to lay off workers. b. Tyler feels wealthier because of the price-level decrease and so he decides to remodel his kitchen. c. When interest rates fall, In-and-Out Convenience Stores decides to build some new stores. d. The exchange rate falls, so French restaurants in Paris buy more Kansas beef.

Answer 1

Answer:

The correct option which would not be an expected response from decrease in price level is A) with fall in prices, Fargo concrete company has decided to let go workers who have fixed price contracts.

Explanation:

All the options except A are expected response from the fall in price and helps in explaining why the aggregate demand curve shifted ( towards the right ) . In the option B , Tyler decided to remodel his kitchen because of fall in prices, as now he is able to spend more on consumption and investment activities. Same thing is happening in option C and D as the company's here are increasing their investment spending due to the decreased prices.

But the option A , isn't something that was expected as company's don't usually fire their workers just because they have fixed price wage contract and prices have fallen, company is trying to take advantage of fallen prices by  reducing the fixed wage workers and hiring new workers on a cheap wage , which help in reducing the company's cost.