Why does the aggregate demand curve slope downward?

-

Why does the aggregate demand curve slope downward?



GDP = OUTPUT = NATIONAL EXPENDITURE = C + I + G +NX:


1) CONSUMPTION (C):

Changes in price level will change the REAL value of people's wealth and income → increase in overall prices, reduce people's wealth, in terms of real purchasing power. → When people are less wealthy, they consume less creating a NEGATIVE RELATIONSHIP BETWEEN consumption and overall price level → wealth effect. NOTE: if wages increase the same amount as prices does, the purchasing power of those wages stay the same.


2) INVESTMENT (I): when prices rise, the interest rate (price or borrowing) rises too. Higher interest rates leads to less investments. → increase in borrow costs create an INDIRECT negative relationship between the price level and investment spending.


3) GOVERNMENT SPENDING: The government has NO EFFECT on the negative slopping of the demand curve.


4) NET EXPORTS: When the prices in the US increase, goods become relatively more expensive than goods from other countries, assuming that price levels stay the same in other countries. → Negative relationship between the price level and net exports.

Comments

Post a Comment

Popular posts from this blog

Discuss the seven characteristics of useful information.

-
Discuss the seven characteristics of useful information. Answer: The seven characteristics of useful information are: relevant, reliable, complete, timely, understandable, verifiable and accessible. These characteristics are qualities that information should possess to be useful in a business environment. Briefly stated, in order for information to be useful it must be: 1) relevant, meaning that it reduces uncertainty and adds to the decision-making process; 2) reliable information is information that is free from error, and is accurate in its nature; 3) complete information is information that does not omit any important data, facts, or aspects about events or activities; 4) information is timely when it is fully available to enable the decision-making process to proceed; 5) understandable information must be both in an intelligible and useful format; 6) information is considered verifiable if two people, acting independently of each other, produce the same inform
Read more

Why have accounting software packages been designed with separate transaction modules?

-
Why have accounting software packages been designed with separate transaction modules? Answer: : Since every organization does not necessarily use all of the transaction cycles in its operations, it is to the advantage of the organization to be able to "pick and choose" from among various software modules that track and record different transaction cycles. For example, a law firm would have no need to implement a production cycle module. Also, the nature of a transaction cycle varies across the broad spectrum of business organizations. Again, a law firm would have a revenue cycle, but it would not involve the purchase, receipt, and payment for products or merchandise; likewise a retail store chain may not sell any consulting services to its customers.
Read more

A laboratory assistant prepared solution of 0.8 M, 0.6 M, 0.4 M, and 0.2 M sucrose, but forgot to label them. After realizing the error, the assistant randomly labeled the flasks containing these four unknown solutions as flask A, flask B, flask C, and flask D.

-
A laboratory assistant prepared solution of 0.8 M, 0.6 M, 0.4 M, and 0.2 M sucrose, but forgot to label them. After realizing the error, the assistant randomly labeled the flasks containing these four unknown solutions as flask A, flask B, flask C, and flask D. Design an experiment, based on the principles of diffusion and osmosis, that the assistant could use to determine which of the flasks contains each of the four unknown solutions. Include in your answer (a) a description of how you would set up and perform the experiment: (b) the results you would expect from your experiments: and (c) an explanation of those results based on the principles involved. (Be sure to clearly state the principles addressed in your discussion.)
Read more