00:01
So here we've got a question about aggregate demand.
00:03
So i'm going to sketch the diagram real quick, right? our aggregate demand is a downward sloping construction between output and prices, right? that's what aggregate demand looks like.
00:14
So let's go through these answers and rule them out really quickly.
00:18
Prices no effect on aggregate demand.
00:22
Well, this is wrong.
00:24
Obviously, as the price level falls, aggregate demand is increasing, right? aggregate demand has a slope, right? falling prices tend to reduce interest rates, and that spurs consumption and investment, right? remember, aggregate demand is c plus i plus g plus nx.
00:44
So as prices fall, consumption and investment are increasing from lower interest rates.
00:50
And as prices fall, the real exchange rate is changing, making our exports look more appealing and our imports more expensive leading to an increase in net exports as well, right? b, c, and d are all, no, sorry, b, d, and d are all wrong because price changes don't shift the curve, right? as the price changes, we move along the aggregate.
01:30
We don't shift it, right? the price is the variable on the vertical axis...