Why the aggregate demand curve slopes downwardThe following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 140, and the quantity of output demanded is $300 billion. Moving down along the aggregate demand curve from point A to point B, the price level falls to 120, and the quantity of output demanded rises to $500 billion. 170160150140130120AD11010090100200300400500600700800OUTPUT (Billions of dollars), causing the quantity of output demanded toAs the price level falls, the cost of borrowing money willThis phenomenon is known as theeffect.in foreign exchangeAdditionally, as the price level falls, the impact on the domestic interest rate will cause the real value of the dollar toand the number of foreignmarkets. The number of domestic products purchased by foreigners (exports) will thereforeproducts purchased by domestic consumers and firms (imports) willNet exports will thereforecausing the quantity of domestic output demanded toThis phenomenon is known as theeffect.PRICE LEVEL

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Answered: 170 160 150 140 130 120 AD 110 100 90…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Why the aggregate demand curve slopes downward

The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 140, and the quantity of output demanded is $300 billion. Moving down along the aggregate demand curve from point A to point B, the price level falls to 120, and the quantity of output demanded rises to $500 billion.

170
160
150
140
130
120
AD
110
100
90
100
200
300
400
500
600
700
800
OUTPUT (Billions of dollars)
, causing the quantity of output demanded to
As the price level falls, the cost of borrowing money will
This phenomenon is known as the
effect.
in foreign exchange
Additionally, as the price level falls, the impact on the domestic interest rate will cause the real value of the dollar to
and the number of foreign
markets. The number of domestic products purchased by foreigners (exports) will therefore
products purchased by domestic consumers and firms (imports) will
Net exports will therefore
causing the quantity of domestic output demanded to
This phenomenon is known as the
effect.
PRICE LEVEL

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