# In 2013, Prussia's aggregate demand curve was determined by the equation M + 1-4%A change in aggregate demand means that in 2014, Prussia's aggregate demand curve was determined by the equationUsing this information, draw Prussia's old and new dynamic aggregate demand curves on the graphWhich of the factors could have resulted in the change irnaggregate demand seen between 2013 and 2014?13AD 2013an improvement in technologyO an increase in importsO higher consumer confidenceO a decrease in oil prices12AD 201410854324 -3 2 1 0 1 2 3 4 5 6 78 9 10Real GDP growth rate

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Step 1

The quantity theory of money:

The quantity theory of money equation can be written as follows:

Step 2

a.

2013:

According to the theory,

If M+V = 4%, then P+Y = 4%

Figure -1, shows the Prussia’s aggregate demand curve:

The combination point of real GDP and inflation is (-4%, 8%) and (4%, 0%)

Step 3

b.

2014:

According to the theory,

If M+V = 7%, then P+Y = 7%

Figure -2, shows the Prussia’s 2014 aggregate demand curve:

The...

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