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Short Essay Week Three
Michael Cooks
ECO/372
November 7, 2012
Peter Stewart

Short Essay Week Three
The amount of services and goods wanted by the economy at various prices is known as the aggregate supply curve. The full picture for the downward-sloping aggregate supply curve differs from the details for the downward-sloping demand curves.   The main reason they differ is that the demand curve assumes that prices remain steady and assuming that customer’s financial status remain constant.   As the prices of goods increases, the demand decreases because the prices of goods goes down, and buyers incomes will decrease if they buy goods at a higher rate.   It is almost impossible to clarify the downward slope of the aggregate demand curve by means of the similar reasoning assumed for the downward-sloping individual product demand curves.
The three explanations for a downward-sloping aggregate demand curve are wealth effect, interest rate effect, and net export effects.   Wealth effect refers to an increase or a decrease in spending that go along with an increase in apparent prosperity.   The wealth effect would make adjustments in the quantities and supply of customer consumption produced by changes in customer prosperity.   The wealth effect, consequently, offers a purpose for the opposite association between the price rates, and real GDP that is revealed in the downward-sloping demand curve.   The interest rate effect shows why aggregate expenditures are in reverse associated to the price rate.   As the price decrease it has a contradictory effect, making decline interest rates which ignite the rise in borrowing in consumption and investment expenditures.   As prices change, the interest rates effect is started, which results in adjustments in aggregate expenditures.   If an interest rate is low it can lessen the total cost of expenditures.   Modifications in the interest rate can have an enormous influence on depletion and investment costs. A higher price rate...

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