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In the tiny island nation of Bongo, the nations wealth is broken down as follows: 50 percent is cash in checking and savings

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Answer #1

Bongo experienced an inflation rate of 27 percent and housing prices and stock prices each increased by 9 percent.

real wealth = wealth / price.

If an increase in wealth (9%) is less than the inflation rate (27%), then the real wealth will decrease.

Hence, real wealth in Bongo decreased last year.

A change in real wealth helps explain the downward slope of the aggregate demand curve because the decline in real wealth leads to a decrease in planned aggregate expenditure and a decrease in consumption.

Answer: Option (a) and Option (b)

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