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What effect would a decrease in real interest rates paid by the consumer have on aggregate demand?
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What will happen when Aggregate demand and aggregate supply decrease?
When aggregate demand and aggregate supply both decrease, the result is no change to price. As price increases, aggregate demand decreases, and aggregate supply increases.
Why interest rate has no affect on the aggregate demand?
The interest rate does affect aggregate demand. As the interest rate falls, aggregate demand increases and vice-versa.
A decrease in government spending will cause a?
decrease in aggregate demand
What happens with a decrease in aggregate demand?
Aggreagate demand will increase.
In an aggregate demand-aggregate supply diagram what will equal decreases in government spending and taxes do?
No effect. Spending will decrease Aggregate Demand, lower taxes will raise Aggregate Demand
What will happen when Aggregate demand and aggregate supply decrease?
When aggregate demand and aggregate supply both decrease, the result is no change to price. As price increases, aggregate demand decreases, and aggregate supply increases.
Why interest rate has no affect on the aggregate demand?
The interest rate does affect aggregate demand. As the interest rate falls, aggregate demand increases and vice-versa.
A decrease in government spending will cause a?
decrease in aggregate demand
What happens with a decrease in aggregate demand?
Aggreagate demand will increase.
In an aggregate demand-aggregate supply diagram what will equal decreases in government spending and taxes do?
No effect. Spending will decrease Aggregate Demand, lower taxes will raise Aggregate Demand
What is the relationship between inflation and ocr?
As the OCR increases it is highly likely that banks will increase their retail interest rates. As they do this borrowing will become relatively more expensive so there will be more incentive to save. So consumption a component of Aggregate demand will decrease causing aggregate demand to decrease which will than decrease Demand pull inflation
Why does aggregate demand go up when money supply increases?
It doesn't. Money supply has no effect on aggregate demand. Aggregate demand is only effected by the buying power of money, real interest rate, and the real prices of exports and imports. If the supply of money goes up it only causes a short term decrease in the nominal interest rate. The price level is not accompanied by a decrease in the supply of money so the real interest rate does not rise.
An increase in interest rates affects aggregate demand by?
An increase in interest rates decreases the aggregate demand shifting the curve to the left.
Does increasing taxes decrease aggregate demand?
cause of incresing and decresing the Determinants of aggregate?
An decrease in taxes shifts the aggregate demand curve to the?
right
Shift in the aggregate demand curve?
Remember that aggregate demand is composed of consumer spending, investment spending, government spending, and net export spending. Many things affect consumer spending. The main things are consumer wealth, consumer expectations, household indebtedness, and taxes. The wealthier the consumers, the more they will spend. The higher the consumer's expectations are, the more they will spend. The lower the consumer's indebtedness, the more they will spend. The lower their taxes are, the more they will spend. If consumer spending increases, the aggregate demand curve will shift to the right. As for investment spendings: interest rates and expected returns affect this variable. As interest rates decrease, there will be more investments made. The higher a business's expected return is, the more they will invest. If more investments are being made, the aggregate demand curve will shift to the right. Change in government spending is pretty self explanatory. The more government decides to spend, the more aggregate demand will increase and therefore, shift to the right. For net expert spendings, a rising national income would mean more US exports. Moreover, a depreciation of the dollar causes more US exports. The more net exports there are, the more aggregate demand will increase and therefore, shift to the right.
What will happen if Aggregate demand increases and aggregate supply decreases?
An increase in aggregate demand and a decrease in aggregate supply will result in a shortage: there will be more goods and services demanded than that which is being produced.
