Real money balances measure how many goods and services your share of the nation's money supply will buy. Using this information, if Juan's share of the nation's money supply is $100, how much can Juan buy of aggregate output if the price levels are 100, 102, 104, and 98?
My answers are: 100, 98, 96, and 102 with rounding. Real balances shows that the amount of real GDP that a consumer will consume decreases as the price level increases and the amount a consumer buys will increase as the price level decreases. You are to conclude that the aggregate demand curve is downward sloping because of the real buying power of money.
For extra credit, what are the other reasons why aggregate demand slopes downward and to the right? See here. And here.
The Daily Review is a feed for the FREE app and a way for the author to keep the methods of economics in a place in his mind where they can be used to analyze policy and make decisions.
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