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Sagot :
Because of the wealth effect, a rising aggregate price level "reduces" the purchasing power of wealth and therefore "reduces" the aggregate quantity of output demanded.
What is wealth effect?
According to the wealth effect, a behavioural economic hypothesis, customers will spend more money even if their income stays the same.
The effect of wealth effect on aggregate demand is-
- People will increase their consumption as their wealth rises. Thus, at lower price levels compared to higher price levels, the consumption component of aggregate demand will be stronger.
- A person's desire for inexpensive fast food is likely to decline as their income rises, but their desire for more costly steak may increase.
To know more about the aggregate demand and aggregate supply, here
https://brainly.com/question/25749867
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