ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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consumers are more willing to buy a good as its price falls.
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as price falls, real income increases and consumption increases which increases aggregate demand.
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Either A or B
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None of the above
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Detailed explanation-1: -A second reason the aggregate demand curve slopes downward lies in the relationship between interest rates and investment. A lower price level lowers the demand for money, because less money is required to buy a given quantity of goods.
Detailed explanation-2: -Income and Wealth As household wealth increases, aggregate demand typically increases. Conversely, a decline in wealth usually leads to lower aggregate demand. When consumers are feeling good about the economy, they tend to spend more and save less.
Detailed explanation-3: -At the higher price level, the consumption, investment, and net export components of aggregate demand will all fall; that is, there will be a reduction in the total quantity of goods and services demanded, but not a shift of the aggregate demand curve itself.
Detailed explanation-4: -If consumption increases i.e. consumers are spending more, therefore aggregate demand for goods and services will increase. Additionally, if investment increases i.e. if there is a fall in interest rates, then production will increase as technology improves and output increases. Therefore, demand will rise.