in the context of aggregate demand and aggregate supply, the wealth effect refers to the idea that, when the price level decreases, the real wealth of households

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30-11-2021
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in the context of aggregate demand and aggregate supply, the wealth effect refers to the idea that, when the price level decreases, the real wealth of households

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jayilych4real jayilych4real · Answer 1 · 2021-12-10T02:18:06+01:00

Based on the context of aggregate demand and aggregate supply, when the price level decreases, the real wealth of households:

Increases and as a result consumption spending increases. This effect contributes to the downward slope of the aggregate-demand curve

According to the given question, we are asked to show what would happen when there is a reduction in the price level based on the aggregate demand and aggregate supply with relation to the real wealth of households

As a result of this, we can see that because of the reduction in the price of goods, then the real wealth of households would increase because there is more purchasing power to buy more goods.

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