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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Suppose consumption rises while investment and government purchases remain constant. How will the AD curve shift in the simple Keynesian model? Under what condition will the rise in Real GDP be equal to the rise in total spending?

To determine

The shift in the AD curve when the consumption increases and the investment and government purchases remain unchanged.

Explanation

The aggregate demand is the summation of all the individual demand curves of the economy at various price points in the market. The AD curve is dependent on the level of consumption, level of investment, and level of government purchases of the economy. Thus, the aggregate demand equation can be written as follows:

Aggregate Demand=Consumption+Investment+Government purchasesAD=C+I+

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