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Why aggregate spending decrease as the price level increases?
Because if a price level is higher for a good, aggregate spending will decrease as the level of the price increases. And vice versa - the cheaper a good is, OR the MORE that your money will buy, the more likely you are to spend that money.
What will happen to the equilibrium price level and real GDP if aggregate demand and aggregate supply both decrease?
Keynesian model- where AS is upward sloping, GDP will decrease and inflation will either increase or decrease, this depends on which decrease is larger.. Neo classical- GDP will remain the same and price level decreases. The first answer is the one you would use in a class. Try drawing them out and seeing what happens, shift both curves to the left, put Y(GDP) on the x axis and Inflation(Price level) on the y axis.
When the federal reserve reduces the money supply what happens to the GDP and price level?
The reduction in the money supply increases the price level, causes deflation, and may increase or decrease the GDP depending on the level of rational expectations.
What would happen to the quantity of money people wish to hold when there is a decrease in the price level?
It would decrease, if there are lower prices, than people would naturally demand less of it. This is the quantity theory of money Money Demand= Price level*Income/Velocity of Money, what is important here is that Price level is in the numerator, so when it decreases the total quantity of money decreases as well.
Concern about an international crisis has caused consumers to save their money and postpone big purchases what is the effect on aggregate demand and supply?
aggregate demand will decrease, lowering both real GDP and the price level
If both aggregate output and the aggregate price level increase what will happen?
a decrease in need which will in turn surplus the output and decrease the price level. then output will decrease.
Why aggregate spending decrease as the price level increases?
Because if a price level is higher for a good, aggregate spending will decrease as the level of the price increases. And vice versa - the cheaper a good is, OR the MORE that your money will buy, the more likely you are to spend that money.
What will happen to the equilibrium price level and real GDP if aggregate demand and aggregate supply both decrease?
Keynesian model- where AS is upward sloping, GDP will decrease and inflation will either increase or decrease, this depends on which decrease is larger.. Neo classical- GDP will remain the same and price level decreases. The first answer is the one you would use in a class. Try drawing them out and seeing what happens, shift both curves to the left, put Y(GDP) on the x axis and Inflation(Price level) on the y axis.
When the federal reserve reduces the money supply what happens to the GDP and price level?
The reduction in the money supply increases the price level, causes deflation, and may increase or decrease the GDP depending on the level of rational expectations.
What would happen to the quantity of money people wish to hold when there is a decrease in the price level?
It would decrease, if there are lower prices, than people would naturally demand less of it. This is the quantity theory of money Money Demand= Price level*Income/Velocity of Money, what is important here is that Price level is in the numerator, so when it decreases the total quantity of money decreases as well.
Concern about an international crisis has caused consumers to save their money and postpone big purchases what is the effect on aggregate demand and supply?
aggregate demand will decrease, lowering both real GDP and the price level
What is diflation?
Deflation is decrease in general price level of services and goods. Deflation occur when inflation rate is 0%
What will happen to the value of the dollar (against foreign currencies) if the U.S. price level doubles?
The value will decrease by 50%.
How does a decrease in the price level impact real wealth and aggregate demand?
A decrease in the price level can increase real wealth because people's money can buy more goods and services. This can lead to an increase in aggregate demand as consumers are more willing to spend money, which can stimulate economic growth.
A decrease in demand will have what effect on equilibrium price and quantity?
There will be a decrease in price and quantity.
Is heating oil expected to decrease in price?
The price of heating oil is expected to decrease.
State the final impact of cost-push inflation on the price-level and real output?
Cost pushes the price of products up. Demand will decrease. Output will be reduced.
