m > [U -' 130 "J O E B I1 120 + I I 110 I I D I I I I 100 I I I I 90 I I I I I I I 0 100 200 300 400 500 600 700 500 REAL GDP [Billions of dollars) As the price level falls, 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. When an economy's price level falls.f ceteris paribus, the domestic price level relative to the price level in other countries will V . This means that domestic exports will be relatively V expensive than before, while foreign imports will be relatively V expensive than they were previously. The number of domestic products purchased by foreigners (exports) will therefore V , and the number of foreign products purchased by domestic consumers and rms (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. a OneDrive 3 . Why the aggregate demand curve slopes downward The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 140, and the quantity of output demanded is $300 billion. Moving down along the aggregate demand curve from point A to point B, the price level falls to 120, and the quantity of output demanded rises to $500 billion. 170 160 150 A 140 130 PRICE LEVEL B 120 110 AD 100 90 100 200 300 400 500 600 700 800