The change in the aggregate quantity of goods and services demanded in the U.S.is based on the logic that as the price level falls,
A)real wealth rises, interest rates rise, and the dollar appreciates.
B)real wealth rises, interest rates fall, and the dollar depreciates.
C)real wealth falls, interest rates rise, and the dollar appreciates.
D)real wealth falls, interest rates fall, and the dollar depreciates.

Question

Quizplus · Accepted Answer

When the price level falls, real wealth rises because people can purchase more goods and services with their same income. As a result, they feel wealthier and are more likely to spend more money, which increases aggregate demand. This increased demand leads to a higher quantity of goods and services being produced, which leads to more jobs and higher profits for businesses. Interest rates also decrease because people are more willing to borrow money when prices are lower, and this increased borrowing stimulates spending further. Finally, the dollar depreciates because lower interest rates make dollar-denominated assets less attractive to foreign investors, who will sell dollars and buy other currencies, causing the dollar's value to fall.

The Change in the Aggregate Quantity of Goods and Services