The fourth term that will lead to a shift in the aggregate demand curve is NX

The fourth term that will lead to a shift in the aggregate demand curve is NX

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Unformatted text preview: The fourth term that will lead to a shift in the aggregate demand curve is NX(e). This term means that net exports, defined as exports less imports, is a function of the real exchange rate. As the real exchange rate rises, the dollar becomes stronger, causing imports to rise and exports to fall. Thus, policies that raise the real exchange rate though the interest rate will cause net exports to fall and the aggregate demand curve to shift left. Again, an exogenous decrease in the demand for exported goods or an exogenous increase in the demand for imported goods will also cause the aggregate demand curve to shift left as net exports fall. An example of this type of exogenous shift would be a change in tastes or preferences. Shifts to the right The aggregate demand curve also can shift right as the economy expands. When the aggregate demand curve shifts right, the quantity of output demanded for a given price...
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This note was uploaded on 12/13/2011 for the course ECO 1310 taught by Professor Staff during the Fall '10 term at Texas State.

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