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Same reasoning behind inflation’s redistributive effect applies here.

When consumers’ wealth falls, they will tend to feel “poorer,” so consumption will fall. As consumption falls, GDP or output will also fall. So, the AD curve falls or shifts left.

Conversely, if consumer wealth increases, consumption rises...

If consumption rises, GDP or output rises. So, the AD curve will also rise or shift right.

2. Interest rate effect: As the price level rises, the demand for credit increases. Why? Because it takes more money to buy goods and services. People will therefore tend to borrow more money to finance their purchases...

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