Answer:
lower price level will increase the real value of many financial assets and therefore cause an increase in spending.
Explanation:
In Economics, there are primarily two (2) factors which affect the availability and the price at which goods and services are sold or provided, these are demand and supply.
The law of demand states that, the higher the demand for goods and services, the higher the price it would be sold all things being equal (ceteris paribus). Thus, there exist a negative relationship between the quantity of goods demanded and the price of a good i.e when the prices of goods and services in the market increases or rises: there would be a significant decline or fall in the demand for this goods and services.
This ultimately implies that, an increase in the price level of a product usually results in a decrease in the quality of real output demanded along the aggregate demand curve.
In order to understand both short-run economic fluctuations and how the economy move from short to long run, we need the aggregate supply and aggregate demand model.
An aggregate demand curve gives a negative relationship between the aggregate price level for goods or services and the quantity of aggregate output demanded in an economy at a specific period of time.
Aggregate demand (AD) can be defined as the total quantity of output (final goods and services) that is demanded by consumers at all possible price levels in an economy at a particular time.
In Economics, the real-balance effect also referred to as Pigou effect illustrates why aggregate demand and expenditures are inversely proportional to the price level of goods and services, and as such being negatively sloped.
Hence, the real-balances effect on aggregate demand suggests that a lower price level will increase the real value of many financial assets and therefore cause an increase in spending.
