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Assignment5-6 - Econ 202 Nelson Unit 5 Assignment Ingalls I...

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Econ 202 - Nelson Unit 5 Assignment Name _______Ryan Ingalls____ I. What are the three reasons why the aggregate demand curve has a negative slope? A. Wealth effect: an increase in the price level leads to a decrease in the real value of a household’s wealth B. Interest rate effect: when price level increases, people need more money to purchase goods/services. This increase in the demand pushes interest rates up, which decreases consumption by households C. Foreign purchases effect: higher price level affects imports and exports, which decreases aggregate demand II. In the short run, what is the impact on aggregate output and the price level of each of the following? Use a graph showing aggregate demand and short-run aggregate supply curves to support your answer. A. A decrease in consumption caused by a rise in interest rates. This would cause a decrease in price level, associated with a decrease in aggregate demanded B. A fall in wages rates. This would cause a decrease in price level and an increase in aggregate supply C. A decline in productivity.
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