Question

Please give me a complete thought in a complete paragraph.

When the price level falls, people’s wealth increases. When wealth increases, the real volume of consumption increases. Therefore, a decrease in the price level will cause the aggregate demand curve to shift to the right.” Do you agree? Explain.

Answer 1

Yes I agree

• When the price level falls, the purchasing power of money increases.
• At the same time, when the income of people increases, as a result of fall in price level their demand for goods and services increases.
• This is because when the purchasing power of money increases, the real volume of consumption increases, which further increases consumers demand.
• This will cause the demand to increase as a result of which the aggregate demand curve shifts to the right.