comm7 - Alex Yang Goetz-2 Econ IB SL 25 February 2010...

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Alex Yang Goetz-2 Econ IB SL 25 February 2010 Commentary #7 Aggregate demand is all goods and services (rGDP) that buyers are willing and able to purchase at different price levels. Aggregate demand is often represented by a downward sloping curve which is a result of three effects. One is the wealth effect which high price levels reduce the purchasing power of people’s savings, balances, and assets. The second is the interest rate effect which results from an increase in price levels which increases the demand for money and drives up the price paid for using money. Lastly is the foreign trade effect which increases in price levels cause a decrease in net exports. Aggregate demand is also shifted by a variety of factors. One of such is a change in consumer spending which is dependent upon consumer wealth and expectations, household dept, and taxes. Another is a change in investment spending which is affected by real interest rates, expected returns, new profitable technology, and business taxes. Government spending is another shifter of aggregate demand. Lastly, aggregate demand shifts due to changes in net exports which
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This note was uploaded on 01/22/2012 for the course ECON 101 taught by Professor Smith during the Spring '11 term at Art Inst. Boston.

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comm7 - Alex Yang Goetz-2 Econ IB SL 25 February 2010...

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