Principles of Economics- Mankiw (5th) 686

Principles of Economics- Mankiw (5th) 686 - 710 PA R T T W...

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710 PART TWELVE SHORT-RUN ECONOMIC FLUCTUATIONS any price level is lower, the aggregate-demand curve shifts to the left. Conversely, imagine that a stock market boom makes people feel wealthy and less concerned about saving. The resulting increase in consumer spending means a greater quan- tity of goods and services demanded at any given price level, so the aggregate- demand curve shifts to the right. Thus, any event that changes how much people want to consume at a given price level shifts the aggregate-demand curve. One policy variable that has this effect is the level of taxation. When the government cuts taxes, it encourages people to spend more, so the aggregate-demand curve shifts to the right. When the government raises taxes, people cut back on their spending, and the aggregate- demand curve shifts to the left. Shifts Arising from Investment Any event that changes how much firms want to invest at a given price level also shifts the aggregate-demand curve. For instance, imagine that the computer industry introduces a faster line of
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