(Transcript of audio with descriptions. Transcript includes narrator headings and description headings of the visual content)
(Speaker)
For the last part, you were asked to examine the effect of a fall in the aggregate price level. This time, we will start with our basic aggregate demand line.
(Description)
Using the AD/AS model, in the short run, determine whether the events cause a shift of a curve or a movement along a curve. Determine which curve is involved and the direction of the change. A fall in the aggregate price level increases the purchasing power of households' and firms' money holdings. As a result, they borrow less and lend more. On the Figure there is a graph of aggregate demand. Horizontal axis corresponds to the real GDP. Vertical axis corresponds to aggregate price level. The straight line (demand) is plotted crossing the axes at some equally distant from origin points.
(Speaker)
At a lower price level households and firms can purchase the same quantity of goods and services holding fewer dollars. The public tries to reduce its money holdings by borrowing less and lending more, so interest rates fall, leading to a rise in both investment spending and consumer spending. This is the interest rate effect of a change in the aggregate price level, represented as a movement down along the aggregate demand curve.
(Description)
On the Figure there is a graph of aggregate demand. The straight line (demand) is plotted crossing the axes at some equally distant from origin points. The arrow pointing down along the aggregate demand curve is plotted. A lower price level results in both lower money holdings and interest rates causing real GDP to increase.