ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The interest rate effect
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The exchange rate effect
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Misperceptions theory
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The real wealth effect
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Sticky wage theory
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Detailed explanation-1: -When the price level increases, goods in other countries are relatively cheaper. As a result, a country’s imports increase, displacing the demand for domestic production.
Detailed explanation-2: -Relationship Between Prices and Consumer Demand In general, when the price of a good or service changes, consumer demand for that good or service is also impacted. This is the basis for the law of demand, which states that any increase in prices tends to cause the demand for a good or service to decline.
Detailed explanation-3: -A higher domestic price level means that domestic currency is appreciated with respect to foreign currencies. This makes imports cheaper and exports expensive. This reduces exports and increases imports in the economy which reduces the value of net exports.
Detailed explanation-4: -Price levels are leading indicators in the economy; rising prices indicate higher demand leading to inflation while declining prices indicate lower demand or deflation.