Answer to Question #50996 in Macroeconomics for Hank Michaels

Question

If the price level increases, the real value of household money holdings falls. This will result in a
downward shift of aggregate expenditures and a leftward shift of the aggregate demand curve.

Is this true, false, or uncertain? Try to answer in detail,
Cheers

Answer 1

If the price level increases, the real value of household money holdings falls, if the nominal incomes are the same. If the purchasing power of the households decreases, the consumption also falls. This will result in a downward shift of aggregate expenditures and a leftward shift of the aggregate demand curve, as the households consume less.
So, the statement is True.