Economic

BUSI2003: Aggregate Demand Topic: The Wealth Effect of Price Change What is WEALTH? ASSETS = MONEY IN SAVINGS ACCOUNT + STOCKS+BONDS+GOLD+HOUSES+PROPERTIES WEALTH EXAMPLE: SAVING WHY DO PEOPLE BUILD A WEALTH? ANSWER: FOR FUTURE CONSUMPTION and also for the next generation SUPPOSE YOU HAVE $10,000 IN YOUR SAVING ACCOUNT OLD PRICE NEW PRICE Change (%) LAPTOP PRICE $1,000 $1,100 WHAT IS THE REAL VALUE OF YOUR WEALTH? FINDINGS: HOW WOULD YOU RESPOND TO THE PRICE INCREASE? C change? (How would you change C and S to compensate the lost wealth?) S change? Then how about AD? (REMEMBER: AD=C+1+G+X-M) FINAL FINDING: P INCREASES => AD