This is a Dropdown List question/t is worth 8points/You have 2 of 2 attempts rem

Question

This is a Dropdown List question/t is worth 8points/You have 2 of 2 attempts remaining/There is no anmemot penalty 03 Question 8 points) See page 829 class and your textbook you learmed why the aggregate demand curve slopes downward, Sike the one shown below Price level Real GDP ttrillions f The next three questions ask you to explain why there is a negative relationship between the price level and v1st attempt Part 1 (3 points) When the price level falls, househoid real wealth willand consumption spending will quantity of aggregate demand will real wealth will and consumptionspending wil ·Therefore, the Part 2 (3 points) If the price level falls, people will save . .and the interest rate wil .Firms, therefore, will Part 3 (2 points) If the price level in the United States decreases relative to the price level in other countries.net exports will quantity of aggregate demand will -and the

Explanation / Answer

Part 1) RISES, INCREASES, INCREASE.

purchasing power increases with decrease in price which increases real wealth. Consumption depends on wealth and therefore consumption spending increases. Aggregate demand includes consumption spending. Thus quantity of aggregate demand increases.

Part 2) MORE, DECREASE, INCREASE

When people save more supply of funds increases which causes a decrease in interest rate. The decrease in cost of borrowing increases investment spending.

Part 3) RISE, INCREASE

Decrease in price makes the domestic currency cheaper for foreign. This increases net exports and thus quantity of aggregate demand.

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