Explain how the aggregate demand curve is derived
What will be an ideal response?
Let the price level decrease resulting in an increase in the real money supply and a decrease in the interest rate. The lower interest rate increases consumption and investment spending. Thus, there is an inverse relationship between the price level and real income representing the aggregate demand curve.
You might also like to view...
For most products, purchases tend to fall with decreases in consumers' incomes. Such products are known as
A. average goods. B. inferior goods. C. direct goods. D. normal goods.
Refer to the scenario above. Maria should choose to:
A) drive, as it will save her $120. B) travel by train, because it is quicker. C) drive, as it will give her a real saving of $150. D) travel by train, as it will save her $30 in travel time.
Suppose that the Federal Reserve enacts expansionary policy. Everything else held constant, this will cause the demand for U.S. assets to ________ and the U.S. dollar to ________
A) increase; appreciate B) decrease; appreciate C) increase; depreciate D) decrease; depreciate
Which of the following variables that affect the money stock are outside the direct control of the Federal Reserve?
a. Currency/deposit ratio b. Excess reserve/deposit ratio c. Required reserve/deposit ratio d. The speed of the money creation process. e. Both a and b