Principles of Macroeconomics (MindTap Course List)
Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN: 9781305971509
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 21, Problem 9PA
To determine

The effect on aggregate demand due to increased government spending.

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Suppose government spending increases. Would the effect on aggregate demand be larger if the central bank held the money supply constant in response or if the central bank chose to maintain a fixed interest rate? Illustrate and explain
is one of the reasons aggregate demand decreases when interest rates increases is because people earn more money by keeping it in the bank?
When the Fed sells bonds, the amount of money in circulation in the economy_______ . This drives interest rates_________ , which causes businesses to invest________ in capital improvements such as new factories and upgraded equipment. The result is_________ in aggregate demand,________ in the equilibrium price level, and______ in the equilibrium level of real GDP.
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