From class and your textbook, you learned why the aggregate demand curve slopes
ID: 1162356 • Letter: F
Question
From class and your textbook, you learned why the aggregate demand curve slopes downward, like the one shown below.
The next three questions ask you to explain why there is a negative relationship between the price level and real GDP.
1. When the price level falls, household real wealth will (increase/decrease)
. Therefore, the quantity of aggregate demand will (increase/decrease)
2.If the price level falls, people will save (more/less)
, and the interest rate will (fall/rise)
. Firms, therefore, will (increase/decrease)
3.If the price level in the United States decreases relative to the price level in other countries, net exports will (increase/decrease)
, and the quantity of aggregate demand will (increase/decrease)
Price level AD Real GDP (trillions of dollars)Explanation / Answer
1) when price level falls, household real wealth will increase and consumption spending will rise.Therefore quantity of aggregate demand will decrease.
2) If the price level falls, people will save less and interest date will increase.
3)If the price level in US decreases net exporf will increase and the quantity of aggregate demand will increase.
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