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What is the foreign trade effect and how does it explain the shape of the aggregate demand curve?
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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
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 :)
Explain the subsititution and income effect of decrease in price?
substitution effect is the explanation for the downward slope of the aggregate damnd curve.
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
Why do aggregate demand curve slope downward explain briefly?
The first reason for the downward slope of the aggregate demand curve is Pigou's wealth effect. Recall that the nominal value of money is fixed, but the real value is dependent upon the price level. This is because for a given amount of money, a lower price level provides more purchasing power per unit of currency. When the price level falls, consumers are wealthier, a condition which induces more consumer spending. Thus, a drop in the price level induces consumers to spend more, thereby increasing the aggregate demand. The second reason for the downward slope of the aggregate demand curve is Keynes's interest-rate effect. Recall that the quantity of money demanded is dependent upon the price level. That is, a high price level means that it takes a relatively large amount of currency to make purchases. Thus, consumers demand large quantities of currency when the price level is high. When the price level is low, consumers demand a relatively small amount of currency because it takes a relatively small amount of currency to make purchases. Thus, consumers keep larger amounts of currency in the bank. As the amount of currency in banks increases, the supply of loans increases. As the supply of loans increases, the cost of loans--that is, the interest rate--decreases. Thus, a low price level induces consumers to save, which in turn drives down the interest rate. A low interest rate increases the demand for investment as the cost of investment falls with the interest rate. Thus, a drop in the price level decreases the interest rate, which increases the demand for investment and thereby increases aggregate demand. The third reason for the downward slope of the aggregate demand curve is Mundell-Fleming's exchange-rate effect. Recall that as the price level falls the interest rate also tends to fall. When the domestic interest rate is low relative to interest rates available in foreign countries, domestic investors tend to invest in foreign countries where return on investments is higher. As domestic currency flows to foreign countries, the real exchange rate decreases because the international supply of dollars increases. A decrease in the real exchange rate has the effect of increasing net exports because domestic goods and services are relatively cheaper. Finally, an increase in net exports increases aggregate demand, as net exports is a component of aggregate demand. Thus, as the price level drops, interest rates fall, domestic investment in foreign countries increases, the real exchange rate depreciates, net exports increases, and aggregate demand increases. source: http://www.sparknotes.com
What did marshal borrow from the marginalist?
In his development of economic theory, Alfred Marshall included the concept of demand, the aggregate effect of consumers who desire products or services.
What determines aggregate demand?
1) The Wealth Effect: A higher price level reduces the purchasing power of financial wealth. Assets such as stocks, bonds, cash, and checking account balances are worth less, which shrinks the amounts you can buy. Thus, higher average prices reduce the amount of domestic production sold along an Aggregate Demand curve. 2) The Foreign-Sector Substitution Effect (real exchange rate effect): Higher prices cause domestic consumers to buy more imports and fewer domestic goods. Foreign buyers respond similarly, shrinking our exports. Investment is affected in a similar fashion. Hikes in the price level drive up domestic production costs. A higher price level shrinks investment both foreign and domestic, firms would find it relatively more profitable to invest abroad. In sum, trends toward imports and foreign investments reinforce the wealth effect in making Aggregate Demand curves negatively sloped. 3) The Interest Rate Effect (intratemporal effect): The amount of borrowing required to finance a major purchase rises if the price level rises. A higher price level increases the demand for loanable funds and, consequently, increases the interest rate, which is the cost of credit. This increase in interest rates reduces investment and such consumer purchases as new homes, cars, or appliances. The figure below summarizes how these effects cause movements along Aggregate Demand curves as the price level changes.
