CFA Practice Question

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CFA Practice Question

Which of the following will increase aggregate demand?

I. Higher prices in a stock market
II. Higher prices in a real estate market
III. Higher real wealth
A. III only
C. None of them. They will increase the quantity of aggregate demand but not the aggregate demand itself.
Explanation: Increases in stock and housing prices increase the real wealth of households and thus increase aggregate demand.

User Contributed Comments 5

User Comment
MaiHuong Increase in stock market and housing price have indirectly effect on demand
DannyZhou Here comes bubble money.
YOUCANDOIT How come it is not C?
I thought wealth effects bring movement along the AD curve.....i thought AD curve shifts if EXPECTED FUTURE income, inflation or profits increases....

Can someone explain this?
hoyleng youcandoit. increase in expected future income increases ppl consumption today, thus increased in aggregrate demand
choas69 increase in wealth aint a movement in the AD curve its not the price level for each quantity, increase in wealth means the money u have today has more purchasing power than it was yesterday.
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