Aggregate Demand 100 200 300 400 500 REAL GOP (Elions of dollars) 600 700 800 P lowing are reasons the aggregate demand curve is downward sloping? Check all that apply. her price level makes domestically produced goods more expensive than foreign goods. her price level decreases consumption through the substitution effect. er price level leads to a lower interest rate. Remain the same/decline/rise
Aggregate Demand 100 200 300 400 500 REAL GOP (Elions of dollars) 600 700 800 P lowing are reasons the aggregate demand curve is downward sloping? Check all that apply. her price level makes domestically produced goods more expensive than foreign goods. her price level decreases consumption through the substitution effect. er price level leads to a lower interest rate. Remain the same/decline/rise
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![The following graph shows the aggregate demand curve in a hypothetical economy. Assume that the economy’s money supply remains fixed.
### Graph Description:
- **Title:** Aggregate Demand
- **Axes:**
- **Vertical Axis (Price Level - CPI):** Ranges from 80 to 160
- **Horizontal Axis (Real GDP - Billions of dollars):** Ranges from 0 to 800
- **Curve:** A downward sloping line labeled "Aggregate Demand," indicating a negative relationship between the price level and real GDP.
### Explanation:
The aggregate demand curve shows the total quantity of goods and services demanded across all levels of the price scale. The downward slope indicates that as the price level decreases, the quantity of real GDP demanded increases.
### Questions:
Which of the following are reasons the aggregate demand curve is downward sloping? *Check all that apply*.
- [ ] A higher price level makes domestically produced goods more expensive than foreign goods.
- [ ] A higher price level decreases consumption through the substitution effect.
- [ ] A lower price level leads to a lower interest rate.
As the aggregate price level rises, the purchasing power of households’ saving balances will **[remain the same/decline/rise]**, causing the quantity of output demanded to **[rise/decline/remain the same]**. This phenomenon is known as the **[net exports/interest-rate/real balances]** effect.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F263acbce-38fa-4709-98a2-4a62e1170ee8%2F2d34fe68-cc04-4a03-af49-485bc54ac3f7%2Fju3vbxl_processed.png&w=3840&q=75)
Transcribed Image Text:The following graph shows the aggregate demand curve in a hypothetical economy. Assume that the economy’s money supply remains fixed.
### Graph Description:
- **Title:** Aggregate Demand
- **Axes:**
- **Vertical Axis (Price Level - CPI):** Ranges from 80 to 160
- **Horizontal Axis (Real GDP - Billions of dollars):** Ranges from 0 to 800
- **Curve:** A downward sloping line labeled "Aggregate Demand," indicating a negative relationship between the price level and real GDP.
### Explanation:
The aggregate demand curve shows the total quantity of goods and services demanded across all levels of the price scale. The downward slope indicates that as the price level decreases, the quantity of real GDP demanded increases.
### Questions:
Which of the following are reasons the aggregate demand curve is downward sloping? *Check all that apply*.
- [ ] A higher price level makes domestically produced goods more expensive than foreign goods.
- [ ] A higher price level decreases consumption through the substitution effect.
- [ ] A lower price level leads to a lower interest rate.
As the aggregate price level rises, the purchasing power of households’ saving balances will **[remain the same/decline/rise]**, causing the quantity of output demanded to **[rise/decline/remain the same]**. This phenomenon is known as the **[net exports/interest-rate/real balances]** effect.
Expert Solution
Step 1
Above concept is based on downward sloping of demand curve.
When the good of a price increases the quantity demanded for that good decreases
In other words, when price of a good increase then the purchasing power of a household decreases which induces them to buy less of a good which leads to decrease in demand for goods in the market.
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