Question

hich of the following is NOT a reason why the aggregate expenditures increase when the price level falls. A. The real value of household wealth rises comma increasing consumption.. B. Consumers substitute from higher minus priced goods to lower minus priced goods. C. Reduced demand for money at lower price levels reduces the interest rate and increases investment. D. Upper A lower U.S. price level relative to other countries increases net exports.

Answer 1

Answer:

The answer is - B. Consumers substitute from higher minus priced goods to lower minus priced goods.

Explanation:

Aggregate expenditure is defined as the total of the expenditures, consumption, investment, government purchases and net export in an economy during a specific period of time.

The formula is: AE = C + I + G + NX.

Where AE = Aggregate expenditure

C= Household consumption

I = Investment

G = Government spending

NX = Net exports

When there is a low price level, there will be a rise in aggregate expenditure due to the wealth effect, international trade effect and interest rate effect. There will be an increase in in money demand. Aggregate expenditures will increase due to the increase in real value of household wealth therefore increasing consumption, decrease in demand for money therefore reducing interest rate and increasing investment and an increase in net exports as the price reduces compared to other countries.