Price determinants of aggregate demand
Posted: Sun Dec 22, 2024 6:44 am
Price and non-price factors of demand have a direct impact on its level. Let us consider the main circumstances related to the price group.
Interest rate effect
The main impact of this effect is such an impact on the variables in the aggregate demand curve, which changes the level of consumer spending and investment. In other words, the telegram dating philippines increase in prices of goods and services increases interest rates on loans, which, in turn, provokes consumers to spend less, including investing less money in investment products.
However, the demand for cash is growing as consumers need additional resources to purchase goods, and manufacturers need to buy raw materials, replace broken equipment, and pay their employees.
In a situation where the money supply remains unchanged, the price for using borrowed money increases, and spending on purchases and investments decreases. As a result, rising prices for goods increase the demand for money and raise the interest rate on loans, reducing the demand for the product.
The wealth effect
It has the ability to strengthen the downward trajectory of the aggregate demand curve and is one of the price factors of market demand. Due to the rise in prices, the real income of potential consumers falls, reducing their purchasing power. However, when prices fall, it grows, and the expenses of potential buyers grow along with it.
Price determinants of aggregate demand
Source: shutterstock.com
Effect of import purchases
Depends on the ratio of national prices and prices on the international market of goods and services. If the cost of goods produced in the country of residence increases, then consumers increasingly turn their attention to similar imported products. Price and non-price factors of aggregate demand when the effect of imported purchases manifests itself in such a way that the demand for nationally produced goods on the international market falls sharply, and imported goods are purchased. And in the case of a decrease in prices for national products, exports grow, and the national economy remains in the black.
Interest rate effect
The main impact of this effect is such an impact on the variables in the aggregate demand curve, which changes the level of consumer spending and investment. In other words, the telegram dating philippines increase in prices of goods and services increases interest rates on loans, which, in turn, provokes consumers to spend less, including investing less money in investment products.
However, the demand for cash is growing as consumers need additional resources to purchase goods, and manufacturers need to buy raw materials, replace broken equipment, and pay their employees.
In a situation where the money supply remains unchanged, the price for using borrowed money increases, and spending on purchases and investments decreases. As a result, rising prices for goods increase the demand for money and raise the interest rate on loans, reducing the demand for the product.
The wealth effect
It has the ability to strengthen the downward trajectory of the aggregate demand curve and is one of the price factors of market demand. Due to the rise in prices, the real income of potential consumers falls, reducing their purchasing power. However, when prices fall, it grows, and the expenses of potential buyers grow along with it.
Price determinants of aggregate demand
Source: shutterstock.com
Effect of import purchases
Depends on the ratio of national prices and prices on the international market of goods and services. If the cost of goods produced in the country of residence increases, then consumers increasingly turn their attention to similar imported products. Price and non-price factors of aggregate demand when the effect of imported purchases manifests itself in such a way that the demand for nationally produced goods on the international market falls sharply, and imported goods are purchased. And in the case of a decrease in prices for national products, exports grow, and the national economy remains in the black.