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Unformatted text preview: 1. True or False: The aggregate demand curve is downward sloping for the same reason that the demand curve for a single good is downward sloping. True !False The law of demand is the key to analyzing the demand for a single good. That is, the price of the good determines a consumer's tendency to buy more when the price is relatively low and buy less when the price is relatively high. For this reason, price and quantity demanded for a single good have an inverse relationship, and the demand curve for a single good is downward sloping. The aggregate demand curve indicates the inverse relationship between the economy's overall price level and the quantity of domestically produced goods and services. It is an inverse relationship for three reasons: the real wealth effect, the interest rate effect, and the open economy effect. The real wealth effect says that as the price level declines, consumers' purchasing power rises. The real wealth effect says that as the price level declines, consumers' purchasing power rises....
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This note was uploaded on 05/23/2010 for the course ECON 102 taught by Professor Payan during the Spring '09 term at Glendale Community College.
- Spring '09