Why Does AD slope downward? - Econ 4.3 Friday, April 2,...

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Econ 4.3 Friday, April 2, 1999 Announcements: There will be review session in 262 Willard on Tuesday, 4/6, from 6:30 to 8 pm. The exam is Wednesday, 4/7. Lecture notes: Why Does AD slope downward? Aggregate demand falls when the price level increases because the higher price level causes the demand for money (Md) to rise. With the money supply constant, the interest rate will rise to reestablish equilbrium in the money market. It is the higher interest rate that causes aggregate output to fall . Other reasons: Consumption Link Real Wealth (real balance) effect Shifting AD -- change in Money Supply ( see Figure 14.3 on page 296 ) An increase in money supply expands money supply and shifts AD to the right and vice versa See Figure 14.5 on page 297 Changes in G or T Expansionary Fiscal Policy: Increase G, decrease T Shift by equal amount: cut taxes more than incrase spending because tax multiplier is less than G multiplier Expansionary Monetary Policy
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This note was uploaded on 02/21/2008 for the course ECON 4.3 taught by Professor Fox during the Spring '99 term at Pennsylvania State University, University Park.

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Why Does AD slope downward? - Econ 4.3 Friday, April 2,...

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