Question

Consider Figure 10-4. What are the three effects of decreases in the price level, and do these generate upward or downward movements along the economy's aggregate demand curve?

Short answer

The three effects of decreases in the price level are global effect, wealth effect and interest effect

Step-by-step solution

introduction

The total interest bend is a descending slanting bend suggesting a reverse connection between the amount requested and cost.

explanation part (1)

Global effect - A diminishing in the cost level in the economy suggests that the products in the economy have become less expensive. With the worldwide costs of labour and products staying unaltered, the imported merchandise from the nation becomes less expensive until the end of the world.

explanation part (2)

Wealth effect- As the cost level in the economy diminishes, the genuine worth of cash and other monetary resources with individuals increments. They can now purchase more with similar cash and acquire additional worth concerning their cash from the monetary resources.

explanation part (3)

As the cost of labour and product expansions in the economy, the genuine worth of the expendable increments. Individuals spend a more modest part of their pay and have more cash to contribute. This comes full circle into lower financing costs.