The change in the aggregate quantity of goods and services demanded in the U.S. is based on the logic that as the price level falls,
A) real wealth falls, interest rates rise, and net exports fall.
B) real wealth falls, interest rates rise, and net exports rise.
C) real wealth rises, interest rates fall, and net exports fall.
D) real wealth rises, interest rates fall, and net exports rise.

Question

Quizplus · Accepted Answer

As the price level falls, real wealth rises as consumers can purchase more goods and services with their existing income. This leads to an increase in consumer spending and aggregate demand. Additionally, as interest rates fall, it becomes easier for consumers and firms to borrow money, which also leads to an increase in spending and aggregate demand. Finally, as the price level falls, net exports are likely to rise as US goods become relatively cheaper compared to foreign goods, leading to an increase in exports and a decrease in imports. This all results in an increase in the aggregate quantity of goods and services demanded.

The Change in the Aggregate Quantity of Goods and Services