Answer to Question #57725 in Macroeconomics for henry
a) Cash holdings
b) A household mortgage
a) Cash holdings will loss its value, because with the increase of the price level the value of money will decrease. The aggregate (private sector) wealth will decrease too, and consumers will spend less, so the aggregate expenditures (AE) will shift to the left.
b) A household mortgage will cost less, because the real value of payments will decrease, that's why the wealth of asset holder will increase. The aggregate (private sector) wealth will increase too, and consumers will spend more, so the aggregate expenditures (AE) will shift to the right.
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