Question

Aggregate demand will be affected by the purchasing power of money.

True/False

In simple and easy words with examples and in more than 150 words.

Answer 1

True, aggregate demand will be affected by the purchasing power of the money. The purchasing power of the money refers to how much goods and services the money can buy and if the inflation rate in the economy is high that implies people will have to pay more for the goods and services that further implies that the purchasing power of the money has reduced, therefore, at the higher price level people will demand lower quantity of goods and services, so a result of reduction in the purchasing power of the money the aggregate demand will fall.