The aggregate quantity of goods and service demanded changes as the price level falls because
A) real wealth rises,interest rates rise,and the dollar appreciates.
B) real wealth rises,interest rates fall,and the dollar depreciates.
C) real wealth falls,interest rates rise,and the dollar appreciates.
D) real wealth falls,interest rates fall,and the dollar depreciates.

Question

Quizplus · Accepted Answer

When the price level falls, consumers can purchase the same quantity of goods and services with less money, which increases their real wealth. Higher real wealth leads to an increase in consumption and thus a higher aggregate quantity of goods and services demanded. Additionally, lower price levels reduce inflation expectations, leading to lower interest rates which stimulates investment and consumption. Finally, a decrease in the price level leads to a depreciation of the dollar, making exports cheaper and increasing net exports. All of these factors contribute to an increase in aggregate demand.

The Aggregate Quantity of Goods and Service Demanded Changes as the Price