When the price level falls, the total quantities of goods and services demanded: increases. In Exhibit 10-1, as production increases, firms resort to offering higher-wage rates to attract the dwindling supply of unemployed resources in: the segment labeled bc.
First, a lower price induces people to substitute more of the good whose price has fallen for other goods, increasing the quantity demanded. Second, the lower price creates a higher real income. This normally increases quantity demanded further.
There are three basic reasons for the downward sloping aggregate demand curve. These are Pigou's wealth effect, Keynes's interest-rate effect, and Mundell-Fleming's exchange-rate effect. These three reasons for the downward sloping aggregate demand curve are distinct, yet they work together.
When the price level rises in an economy, the average price of all goods and services sold is increasing. Inflation is calculated as the percentage increase in a country's price level over some period, usually a year. This means that in the period during which the price level increases, inflation is occurring.
what occurs when a change in the price level leads to a change in consumer spending; this happens because assets have more or less purchasing power. If the price level decreases, then money in your bank account can suddenly buy more stuff, so you feel wealthier and buy more stuff.
The IS curve is downward sloping. When the interest rate falls, investment demand increases, and this increase causes a multiplier effect on consumption, so national income and product rises.
curve for a single product is downward sloping because of diminishing marginal utility and income and substitution effects for the individual at a specified level of income. For macro aggregate demand, the reasons are the interest rate effect, the wealth effect and the net export effect.
On the contrary, with the increase in the price of the product, many consumers will either reduce or stop its consumption. This will result in the fall of demand. Thus, due to the price effect consumers consume more or less of a commodity, the demand curve slopes downward.