Asked by Florence Pochon on May 16, 2024
Verified
The aggregate demand curve slopes downward because households feel poorer after a decrease in the price level.
Aggregate Demand
The total amount of goods and services demanded in an economy at a given overall price level and in a given time period.
Price Level
A measure of the average prices of goods and services in an economy at a given time, indicating the cost of living or inflation rate.
- Understand the concept and reasons behind the downward slope of the aggregate demand curve.
Verified Answer
MC
Müskån ChøwdharýMay 21, 2024
Final Answer :
False
Explanation :
The aggregate demand curve slopes downward due to several reasons such as the wealth effect, interest rate effect, and net export effect. The wealth effect arises from a change in the real value of assets causing changes in consumption. However, the assertion that households feel poorer after a decrease in the price level is incorrect as a lower price level increases the purchasing power of income, which leads households to feel richer and increase their consumption expenditure. Therefore, the correct answer is B, false.
Learning Objectives
- Understand the concept and reasons behind the downward slope of the aggregate demand curve.