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
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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- Spring '12