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Whydoesadslopedown internationaltradeeffectnxfalls

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Unformatted text preview: S Q Why Does AD Slope Down? Why Does AD Slope Down? Firms: interest rate effect on investment – DLF shifts right and SLF shifts left Interest rate rises Amount of dollars borrowed/lent roughly unchanged Real investment falls S’ D’ r D S e1 e0 Q Why Does AD Slope Down? Why Does AD Slope Down? International trade effect: NX falls – – – Imports rise when domestic prices rise Exports fall when domestic prices rise At last a substitution effect! Why Does AD Shift? Why Does AD Shift? Changes in fiscal policy – Set by Congress and the Treasury Changes in monetary policy – Set by the Central Bank (Federal Rese...
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