Which of the following helps explain why the aggregate quantity demanded of good

Question

Which of the following helps explain why the aggregate quantity demanded of goods and services is inversely related to prices within the framework of the AD/AS model?

a. As prices fall, domestic consumers have an incentive to buy more of the cheaper goods and services.

b. As prices fall, the monetary authorities will have to increase the money supply, which will lead to an increase in the quantity of goods and services purchased.

c. As prices fall, the government will have to reduce taxes, which will lead to an increase in the quantity of goods and services purchased.

d. As prices fall, the wealth of people holding the fixed quantity of money increases, causing them to expand their purchases of goods and services.

Explanation / Answer

a. As prices fall, domestic consumers have an incentive to buy more of the cheaper goods and services.

as the prices fall real income of people increases ,now they can buy more of goods at lesser price leading to increase in AD.

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