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Unformatted text preview: price level changes. a rise in the price level causes AD to fall because the real money stock falls, causing interest rates to rise. The higher interest rate has two effects on spending: 1. investment and consumption spending fall 2. the foreign exchange value of the dollar rises so net exports fall The aggregate demand curve shows combinations of the price level (p) and real output (Y) at which the goods and asset markets are both in equilibrium. shifts of AD curve: 1. changes in nominal MS 2. changes in MD (not as a result of a change in income) 3. expected future income 4. government spending and tax cuts/increases 5. expected future profitability of capital 6. business taxes...
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- Fall '09
- Personal Finance