ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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lower prices increase the value of money holdings and consumer spending increases.
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lower prices decrease the value of money holdings and consumer spending decreases.
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lower prices reduce money holdings, increase lending, interest rates fall, and investment spending increases.
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lower prices increase money holdings, decrease lending, interest rates rise, and investment spending falls.
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Detailed explanation-1: -When price falls the holding value of money is increased. As the more quantity of goods can be purchased with same amount of money, with falling price. This explains the downward slope of aggregate demand curve.
Detailed explanation-2: -It slopes downward because of the wealth effect on consumption, the interest rate effect on investment, and the international trade effect on net exports. The aggregate demand curve shifts when the quantity of real GDP demanded at each price level changes.
Detailed explanation-3: -In macroeconomics, a rise in real wealth increases consumption, shifting the IS curve out to the right, thus pushing up interest rates and increasing aggregate demand. A decrease in real wealth does the opposite.
Detailed explanation-4: -This downward slope indicates that increases in the price level of outputs lead to a lower quantity of total spending. The graph shows a downward sloping aggregate demand curve, showing that, as the price level rises, the amount of total spending on domestic goods and services declines.
Detailed explanation-5: -The wealth effect affects consumer spending because a price level change influences the consumer’s purchasing power. An increase in the price level diminishes the consumer’s purchasing power and causes a decrease in the aggregate quantity demanded.