Explain how the wealth effect can affect aggregate demand
What will be an ideal response?
As price levels change, the purchasing power of money changes. If price levels decrease, people holding money find they are better off, and will spend more on additional goods and services. The increase in consumer spending increases aggregate demand. If price levels decrease, people's wealth is reduced and the total demand for goods and services decreases.
Economics
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a. True b. False Indicate whether the statement is true or false
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