Question

Explain how each of the following events in questions 2 and 3 would affect the aggregate demand curve. No graph required

2. Domestic prices decrease, which decreases interest rates. – Word count 100
3. Lower levels of investment by businesses. – Word count 100

PLEASE MAKE THE ANSWER MORE CLEARLY AND HIGH QUALITY. PLEASE DON'T COPY AND PASTE THE ANSWERS WHICH HAVE GIVEN TO THE SAME QUESTION WHICH HAVE POSTED BY OTHERS. GIVE A DIFFERENT BUT ACCURATE ANSWER

Answer 1

2.) Domestic prices when decreases causes the interest rate to decrease because a decrease in price level (P) causes decrease in real money supply (M) M/P , thus decrease in price decreases the interest rates.

According to the question, if the domestic price decreases , the aggregate demand would increase as now the goods would be available to the consumer at lower money value.

3.)If the level of investments by business is lowered for example, because of higher interest rates then, the aggregate demand will decrease and the AD curve will shift to the left and it may also cause recession if it falls below the potential level of GDP.