A central idea behind the AD-AS model is that,during a recession,the price level will decline,which will boost aggregate demand and,thus,eliminate the recessionary gap without requiring any help from government policies.The decline in the price level is expected to boost aggregate demand because of

Question

Quizplus · Accepted Answer

The decline in the price level can boost aggregate demand through the real-balances effect, which increases consumption as the real value of money rises, and the foreign trade effect, which makes domestic goods cheaper for foreigners, increasing net exports.

A Central Idea Behind the AD-AS Model Is That,during a Recession,the