How Does wealth effect Aggregate Demand? Think of some real world examples. Hint! Income Inequality! Remember
a rise in the price level will reduce the real value of wealth, and this will reduce the quantity of aggregate demand. When people have less real wealth, they tend to spend less, and this reduces aggregate demand. Also, a fall in the price level will increase the real value of wealth, and this will increase the quantity of aggregate demand. When people have more real wealth, they tend to spend more, and this increases aggregate demand. Think about it. I want real world examples.
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