Chapter_12

Chapter_12 - Chapter 12: Aggregate Demand and Aggregate...

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Chapter 12: Aggregate Demand and Aggregate Supply Analysis Aggregate Demand AD curve shows the relationship between the price level and the GDP demanded by households, firms and government in the economy. It is downward sloping because of three reasons that we have discussed in the previous chapter: 1. Wealth effect 2. Interest rate effect 3. International trade effect Differentiate between shift of the AD curve and movements along the AD curve. Changes in the things other than the price level will lead to shift of AD curve. When major players in the macroeconomy change their behavior, the AD curve shifts. These players can be: 1. Households 2. Firms 3. Government 4. Central Bank 5. ROW If you are confused about how something should move the AD curve, you can go back to your Keynesian Cross and figure out. For example: a. Interest rates rise cost of borrowing increase less investment and greater incentives for savings less consumption aggregate expenditures decrease AD should decrease b. Government reduces its spending aggregate expenditures go down
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This note was uploaded on 08/21/2011 for the course ECON 2010 taught by Professor Roussel during the Spring '08 term at LSU.

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Chapter_12 - Chapter 12: Aggregate Demand and Aggregate...

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