2.
Explain why a change in one component of aggregate demand will cause the
aggregate demand curve to shift by a multiple of the initial change.
A shift in the aggregate demand curve will be factored using a multiplier because each
component of aggregate demand affects each other. Rittenberg and Tregarthen (2012)
provide the example of increased foreign demand, which will require additional workers,
higher wages, and lead to increased consumption. Since the components of demand
function like a domino effect, a multiplier is necessary to track the ratio of the change.
5.
Give three reasons for the downward slope of the aggregate demand curve.
Rittenberg and Tregarthen (2012) state the
wealth effect, interest rate effect and
international effect cause the downward slope of the aggregate demand curve. The
wealth effect states that a drop in price levels gives the dollar more buying power and
You've reached the end of your free preview.
Want to read both pages?
- Fall '16
- why are you asking me this?
