Question

Indicate what happens to each of the following when the price level​ decreases:

Answer 1

Answer:

a. Consumption will increase as goods and services are now cheaper for people to buy.

b. Investment increases as people will have more money to invest due to having spent less on consumption.

c. Net exports increases as exports become cheaper due to lower prices in the country. More people outside will therefore demand exports leading to them increasing more than imports.

d. Money Demand - B. There is a movement along the Money Demand curve to the Left

As price has decreased, the amount of money needed to buy goods will decrease which would lead to less demand for money. Money demand curve will show this as a movement to the left of the Money demand curve.

e. The interest rate will decrease because there will be more money to invest as explained above. With more money to invest, loanable funds will b in high supply thereby dropping interest rates.

f. Aggregate expenditure shifts right to show that expenditure has increased from people buying cheaper goods.

g. Aggregate demand - B. AD shifts to the Right.

More people will demand goods and services because they are cheaper.