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Answer to Question #12069 in Economics of Enterprise for Michelle

Question #12069
Suppose that aggregate demand increases such that the amount of real output demanded rises by $7 billion at each price level. By what percentage will the price level increase?
Expert's answer
Aggregate demand normally rises as the price level falls and it is lower at a higher price level because:
A higher price level reduces the effective purchasing power of a consumer's budget
At a higher price level interest rates tend to be higher to reduce inflation

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