{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Principles of Economics- Mankiw (5th) 684

Principles of Economics- Mankiw (5th) 684 - 708 PA R T T W...

Info icon This preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
708 PART TWELVE SHORT-RUN ECONOMIC FLUCTUATIONS Y C I G NX. Each of these four components contributes to the aggregate demand for goods and services. For now, we assume that government spending is fixed by policy. The other three components of spending—consumption, investment, and net ex- ports—depend on economic conditions and, in particular, on the price level. To un- derstand the downward slope of the aggregate-demand curve, therefore, we must examine how the price level affects the quantity of goods and services demanded for consumption, investment, and net exports. The Price Level and Consumption: The Wealth Effect Con- sider the money that you hold in your wallet and your bank account. The nominal value of this money is fixed, but its real value is not. When prices fall, these dollars are more valuable because then they can be used to buy more goods and services. Thus, a decrease in the price level makes consumers feel more wealthy, which in turn en- courages them to spend more. The increase in consumer spending means a larger quantity
Image of page 1
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern