PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
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Question
Chapter 15, Problem 1RQ
To determine
The variables related to the aggregate demand curve and determinants of its slope.
Expert Solution & Answer
Explanation of Solution
The aggregate demand curve shows the quantity demand or short-run equilibrium output at different price levels or inflation rate. When the inflation rate increases, the Fed increases the real rate of interest. This will reduce the aggregate expenditure, which in turn reduces the equilibrium level of output in the short run. This inverse relation between the inflation rate and the output level causes a downward sloping aggregate demand curve.
Besides these factors, income, spending, and net export also affect the slope of aggregate demand. When income increases, the consumption also increases, which lower the demand and vice versa. When inflation rate increases, the uncertainty of price in future among households and firms will be less, which in turn reduces the aggregate demand. If the inflation rate increases, the price of domestic goods will increase, which will be more expensive and in turn decreases the export. These factors determine the slope of the demand curve along with the Fed’s behavior.
Economics Concept Introduction
Aggregate demand curve: The aggregate demand curve shows the quantity demand at different price levels.
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Chapter 15 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
Ch. 15.A - Prob. 15A.1CCCh. 15 - Prob. 1RQCh. 15 - Prob. 2RQCh. 15 - Prob. 3RQCh. 15 - Prob. 4RQCh. 15 - Prob. 5RQCh. 15 - Prob. 6RQCh. 15 - Prob. 7RQCh. 15 - Why, in the absence of public beliefs that the...Ch. 15 - Prob. 9RQ
Ch. 15 - Prob. 10RQCh. 15 - Prob. 1PCh. 15 - For the economy in Problem 1, suppose that...Ch. 15 - Prob. 3PCh. 15 - Prob. 4PCh. 15 - For each of the following, use an AD-AS diagram to...Ch. 15 - Prob. 6PCh. 15 - Suppose that a permanent increase in oil prices...Ch. 15 - An economy is initially in recession. Using the...Ch. 15 - Prob. 9PCh. 15 - Prob. 10PCh. 15 - Prob. 11PCh. 15 - Prob. 15.1CCCh. 15 - Prob. 15.2CCCh. 15 - Prob. 15.3CCCh. 15 - Prob. 15.4CCCh. 15 - Prob. 15.5CCCh. 15 - Prob. 15.6CCCh. 15 - Prob. 15.7CCCh. 15 - Prob. 15.8CCCh. 15 - Prob. 15.9CCCh. 15 - Prob. 15.10CC
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