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What is the foreign trade effect and how does it explain the shape of the aggregate demand curve?
The foreign trade effect refers to the impact of changes in the price level on a country's exports and imports. As the price level decreases, domestic goods become cheaper relative to foreign goods, leading to an increase in exports and a decrease in imports, boosting overall demand. Conversely, when the price level rises, domestic goods become more expensive, resulting in reduced exports and increased imports, which diminishes aggregate demand. This relationship helps explain the downward slope of the aggregate demand curve, as lower price levels correspond to higher quantities of goods and services demanded.
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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
Explain movements along the aggregate demand curve and shifts of the aggregate demand curve?
Movements along the aggregate demand curve are caused by changes in price level - real wealth effect, interest rate effect and open economy effect. If some non-price level determinant causes total spending to increase/decrease then the curve will shift to the right/left - consumption, investment, government expenditure, net exports.
Because tax cuts will likely affect both aggregate demand and aggregate supply does it matter which is affected more?
Because a tax increase will cause consumption to decrease, an aggregate demand has a greater effect.
Concern about an international crisis has caused consumers to save their money and postpone big purchases what is the effect on aggregate demand and supply?
aggregate demand will decrease, lowering both real GDP and the price level
Can you List the three reasons the aggregate demand curve is downward sloping?
#1...Dr. Bland said there are no reasons its just a factor of the butanator!!! BUTANATOR: You sqeeze a tube in your hand and when something comes out it makes a demand curve of downward sloping Should be: interest rate effect wealth effect foreign-purchases effect hope it's helpful :)
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
Explain movements along the aggregate demand curve and shifts of the aggregate demand curve?
Movements along the aggregate demand curve are caused by changes in price level - real wealth effect, interest rate effect and open economy effect. If some non-price level determinant causes total spending to increase/decrease then the curve will shift to the right/left - consumption, investment, government expenditure, net exports.
Because tax cuts will likely affect both aggregate demand and aggregate supply does it matter which is affected more?
Because a tax increase will cause consumption to decrease, an aggregate demand has a greater effect.
Concern about an international crisis has caused consumers to save their money and postpone big purchases. What is the effect on aggregate demand and aggregate supply?
aggregate demand will decrease, lowering both real GDP and the price level
Concern about an international crisis has caused consumers to save their money and postpone big purchases what is the effect on aggregate demand and supply?
aggregate demand will decrease, lowering both real GDP and the price level
Explain the subsititution and income effect of decrease in price?
substitution effect is the explanation for the downward slope of the aggregate damnd curve.
Can you List the three reasons the aggregate demand curve is downward sloping?
#1...Dr. Bland said there are no reasons its just a factor of the butanator!!! BUTANATOR: You sqeeze a tube in your hand and when something comes out it makes a demand curve of downward sloping Should be: interest rate effect wealth effect foreign-purchases effect hope it's helpful :)
What happen when both aggregate demand and aggregate supply increases?
When both aggregate demand and aggregate supply increase, the overall effect on the economy depends on the relative magnitudes of the shifts. If aggregate demand increases more than aggregate supply, it can lead to higher prices (inflation) and potential economic growth. Conversely, if aggregate supply increases more than demand, it can result in lower prices and increased output, potentially stimulating economic growth without inflation. In the ideal scenario where both increase proportionately, the economy may experience stable growth with little change in price levels.
True or False The real wealth effect is one reason for the negative slope of the aggregate demand curve?
true
There is Increase in price of salt explain its effect on its demand?
help me
Is it true and an economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the multiplier effect?
Yes, it is true that an economy's aggregate demand curve can shift leftward or rightward by more than the initial changes in spending due to the multiplier effect. When there is an increase in spending, it leads to a greater overall increase in aggregate demand as the initial spending circulates through the economy, prompting further consumption and investment. Conversely, a decrease in spending can lead to a more significant decrease in aggregate demand as the initial reduction also results in reduced income and spending by others. This magnification effect illustrates how initial changes in spending can have a compounding impact on overall demand.
Why aggregate demand is inversely related to the price level?
Aggregate demand is inversely related to the price level due to the wealth effect, interest rate effect, and international trade effect. As the price level rises, the real purchasing power of money declines, reducing consumer spending (wealth effect). Higher prices can lead to increased interest rates, which discourage borrowing and investment (interest rate effect). Additionally, higher domestic prices can make exports less competitive, reducing net exports (international trade effect). Together, these factors lead to a decrease in aggregate demand as the price level increases.
