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Is The aggregate demand curve downward sloping for the same reason that the demand curve for a single good is downward sloping?
Wiki User
∙ 14y ago
true because it is still supply and demand downward sloping
Wiki User
∙ 14y ago
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How is law of demand related to the demand curve?
Law of demand is the reason of the downward sloping of demand curve.Law of demand states the inverse relationship of demand of a commodity and it's price,and demand curve represents this inverse relationship of demand and price.So in this way they both are related.
How is the law of demand related to the demand curve?
Law of demand is the reason of the downward sloping of demand curve.Law of demand states the inverse relationship of demand of a commodity and it's price,and demand curve represents this inverse relationship of demand and price.So in this way they both are related.
Why do aggregate demand curve slope downward explain briefly?
The first reason for the downward slope of the aggregate demand curve is Pigou's wealth effect. Recall that the nominal value of money is fixed, but the real value is dependent upon the price level. This is because for a given amount of money, a lower price level provides more purchasing power per unit of currency. When the price level falls, consumers are wealthier, a condition which induces more consumer spending. Thus, a drop in the price level induces consumers to spend more, thereby increasing the aggregate demand. The second reason for the downward slope of the aggregate demand curve is Keynes's interest-rate effect. Recall that the quantity of money demanded is dependent upon the price level. That is, a high price level means that it takes a relatively large amount of currency to make purchases. Thus, consumers demand large quantities of currency when the price level is high. When the price level is low, consumers demand a relatively small amount of currency because it takes a relatively small amount of currency to make purchases. Thus, consumers keep larger amounts of currency in the bank. As the amount of currency in banks increases, the supply of loans increases. As the supply of loans increases, the cost of loans--that is, the interest rate--decreases. Thus, a low price level induces consumers to save, which in turn drives down the interest rate. A low interest rate increases the demand for investment as the cost of investment falls with the interest rate. Thus, a drop in the price level decreases the interest rate, which increases the demand for investment and thereby increases aggregate demand. The third reason for the downward slope of the aggregate demand curve is Mundell-Fleming's exchange-rate effect. Recall that as the price level falls the interest rate also tends to fall. When the domestic interest rate is low relative to interest rates available in foreign countries, domestic investors tend to invest in foreign countries where return on investments is higher. As domestic currency flows to foreign countries, the real exchange rate decreases because the international supply of dollars increases. A decrease in the real exchange rate has the effect of increasing net exports because domestic goods and services are relatively cheaper. Finally, an increase in net exports increases aggregate demand, as net exports is a component of aggregate demand. Thus, as the price level drops, interest rates fall, domestic investment in foreign countries increases, the real exchange rate depreciates, net exports increases, and aggregate demand increases. source: http://www.sparknotes.com
True or False The real wealth effect is one reason for the negative slope of the aggregate demand curve?
true
Why demand always downward slop in competitive market?
The reason why demand curve is always downward slopin a competitive market is because there are many sellers and buyers in the market.so the price of a commodity in such market determines the demand and supply of that product.unlike a monopolistic market were there is just öne seller and many buyers
How is law of demand related to the demand curve?
Law of demand is the reason of the downward sloping of demand curve.Law of demand states the inverse relationship of demand of a commodity and it's price,and demand curve represents this inverse relationship of demand and price.So in this way they both are related.
How is the law of demand related to the demand curve?
Law of demand is the reason of the downward sloping of demand curve.Law of demand states the inverse relationship of demand of a commodity and it's price,and demand curve represents this inverse relationship of demand and price.So in this way they both are related.
Why do aggregate demand curve slope downward explain briefly?
The first reason for the downward slope of the aggregate demand curve is Pigou's wealth effect. Recall that the nominal value of money is fixed, but the real value is dependent upon the price level. This is because for a given amount of money, a lower price level provides more purchasing power per unit of currency. When the price level falls, consumers are wealthier, a condition which induces more consumer spending. Thus, a drop in the price level induces consumers to spend more, thereby increasing the aggregate demand. The second reason for the downward slope of the aggregate demand curve is Keynes's interest-rate effect. Recall that the quantity of money demanded is dependent upon the price level. That is, a high price level means that it takes a relatively large amount of currency to make purchases. Thus, consumers demand large quantities of currency when the price level is high. When the price level is low, consumers demand a relatively small amount of currency because it takes a relatively small amount of currency to make purchases. Thus, consumers keep larger amounts of currency in the bank. As the amount of currency in banks increases, the supply of loans increases. As the supply of loans increases, the cost of loans--that is, the interest rate--decreases. Thus, a low price level induces consumers to save, which in turn drives down the interest rate. A low interest rate increases the demand for investment as the cost of investment falls with the interest rate. Thus, a drop in the price level decreases the interest rate, which increases the demand for investment and thereby increases aggregate demand. The third reason for the downward slope of the aggregate demand curve is Mundell-Fleming's exchange-rate effect. Recall that as the price level falls the interest rate also tends to fall. When the domestic interest rate is low relative to interest rates available in foreign countries, domestic investors tend to invest in foreign countries where return on investments is higher. As domestic currency flows to foreign countries, the real exchange rate decreases because the international supply of dollars increases. A decrease in the real exchange rate has the effect of increasing net exports because domestic goods and services are relatively cheaper. Finally, an increase in net exports increases aggregate demand, as net exports is a component of aggregate demand. Thus, as the price level drops, interest rates fall, domestic investment in foreign countries increases, the real exchange rate depreciates, net exports increases, and aggregate demand increases. source: http://www.sparknotes.com
True or False The real wealth effect is one reason for the negative slope of the aggregate demand curve?
true
Why demand always downward slop in competitive market?
The reason why demand curve is always downward slopin a competitive market is because there are many sellers and buyers in the market.so the price of a commodity in such market determines the demand and supply of that product.unlike a monopolistic market were there is just öne seller and many buyers
When the supply curve is upward sloping?
Supply curve will be upward sloping in two reason,the first reason is know as the income effect and the second is know as substitution effect.
Is the demand curve for labor upward sloping or downward sloping and why?
Demand curve for labour is downwards sloping. This has a similar reason as to the demand of goods. If labour prices were low, they would be more likely to hire people at this price. However, if prices were high, they may think otherwise. For example, putting price on the y axis and quantity demanded on the x axis, lets say the equilibrium price for labour wage was $20 per hour. At a price of $50/hour, employers would be reluctant to hire an employee at this price as it is a lot higher than the equilibrium price, and therefore, the quantity demanded would be low. However, if wages were at $5/hour, labour would be considered cheap, and employers would more likely want to hire someone at this cheaper price and hence, quantity demanded will be higher.
The fundamental reason why most supply curves are upward sloping is that?
the fundamental reason is that most firms produce quantity inversly proportionate to the current supply/demand ratio is that they are driven by a strong desire of ethics and moral goods along with money. cool.
Why water exerts downward pressure?
The same reason bricks exert downward pressure. Gravity.
Why water exerts pressure?
The same reason bricks exert downward pressure. Gravity.
What is Accelerator in term of managerial economics?
Accelerator comes from the Principle of Acceleration. In managerial Economics, Acceleration Principle means, the rate of change in aggregate Demand to the Rate of Change in Investment. Eg: A company manufactures 100 pieces of cloth with a textile Manufacturing Equipment. The demand for the textile good is 60. So the firm's investment is much higher than the demand. Suppose the demand increases to 120 pieces. The company can produce only 100 with existing machinery. It will still continue to provide the existing 100 pieces output (without investing in additional machinery) Reason: the diff between demand and Supply is only 20. The investment will be a huge expense against this differential. But when the demand reaches, 180 or 200, the company may plan to invest in a new machinery. The differential is higher. Thus acceleration in aggregate demand leads to acceleration in the rate of Investment. This is a concept of Macro Economics. Gyan Prakash Singh MBA(IT) er_gyanpsingh@yahoo.com
What is one reason that wind will move faster over a steep hill than over gently sloping hill?
the pull of gravity
