Question: Help with this question The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 120,
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The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 120, and the quantity of output demanded is $500 billion. Moving up along the aggregate demand curve from point A to point B, the price level rises to 140, and the quantity of output demanded falls to $300 billion. 170 160 150 140 B PRICE LEVEL 130 120 A 110 AD 100 90 0 100 200 300 400 500 600 700 800 OUTPUT (Billions of dollars) .'u ______-I'____T 110 100 90 0 100 200 300 400 500 500 700 500 OUTPUT (Billions of dollars) As the price level rises, the purchasing power of households' real wealth will V , causing the quantity of output demanded to V . This phenomenon is known as the V effect. Additionally, as the price level rises, the impact on the domestic interest rate will cause the real value of the dollar to V in foreign exchange markets. The number of domestic products purchased by foreigners (exports) will therefore V , and the number of foreign products purchased by domestic consumers and firms (imports) will V . Net exports will therefore V , causing the quantity of domestic output demanded to V . This phenomenon is known as the V effect
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