The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 120,

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The Following Graph Shows The Aggregate Demand Ad Curve In A Hypothetical Economy At Point A The Price Level Is 120 1 (45.39 KiB) Viewed 34 times

The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 120, and the quantity of output demanded is $500 billion. Moving up along the aggregate demand curve from point A to point B, the price level rises to 140, and the quantity of output demanded falls to $300 billion. PRICE LEVEL 170 160 150 140 120 110 100 90 0 100 B I 500 200 300 400 OUTPUT (Billions of dollars) AD 600 700 800 As the price level rises, the purchasing power of households' real wealth will . This phenomenon is known as the effect. ? causing the quantity of output demanded to Additionally, as the price level rises, the impact on the domestic interest rate will cause the real value of the dollar to in foreign exchange markets. The number of domestic products purchased by foreigners (exports) will therefore and the number of foreign products purchased by domestic consumers and firms (imports) will causing the quantity of domestic output demanded to . Net exports will therefore This phenomenon is known as the ▼ effect.