This preview shows page 1. Sign up to view the full content.
Unformatted text preview: The term variable that will lead to a shift in the aggregate demand curve is G. This term captures the whole of government spending. The only way that government spending is changed is though fiscal policy. Recall that the budgetary debate is an ongoing political battlefield. Thus, government spending tends to change regularly. When government spending decreases, regardless of tax policy, aggregate demand decrease, thus shifting to the left. 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...
View Full Document
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.
- Fall '10