which of the following is affected by changes in aggregate demand? course hero

Why is the aggregate demand curve downward sloping Quizlet?

A decrease in government spending c. decreases the interest rate and so investment spending increases. Most economists believe that fiscal policy b. primarily affects aggregate demand. Supply-side economists believe that a reduction in the tax rate b. shifts the aggregate supply curve to the right.

What are the short run effects of aggregate demand and supply?

Economics Inquiry for HKDSE – Macroeconomics 1 Chapter 17 Aggregate Demand and Aggregate Supply ## (a) The disposable income of taxpayers will increase if the government refunds part of the salaries tax to them. Therefore, the private consumption expenditure will increase and the aggregate demand will increase. (2 marks) The short-run aggregate supply …

How does the price level affect aggregate demand?

5. Nominal adjustment in the medium run Changes in aggregate demand affect various sectors differently. In the medium run, relative prices adjust mainly because the labour market transmits monetary policy impulses between sectors. As for Hungary, we expect that tradable price changes spread over the entire economy, including non-tradable goods prices. In this section, …

What would cause aggregate demand to shift to the left?

1. Fiscal policy refers to the idea that aggregate demand is affected by changes in a. the money supply. b. government spending and taxes. c. trade policy. d. All of the above are correct.

What is investment in aggregate demand?

Investment is one component of aggregate demand, and higher investment leads to increases in aggregate demand. 5. In the short run, increases in aggregate demand increase output and lower the unemployment rate. Monetary policy:

Why does aggregate demand curve slope downward?

Answer: The three reasons the aggregate demand curve slopes downward are the wealth effect, the interest-rate effect, and the international-trade effect. The wealth effect refers to the effect that a change in the price level has on wealth and, therefore, consumption. An increase in the price level decreases the real value of household wealth, ...

What is the effect of interest rate?

The interest-rate effect refers to the effect that a change in the price level has on interest rates and, therefore, investment spending and consumption. An increase in the price level raises interest rates, which decreases investment spending and consumption spending, particularly on durable goods.

What are the components of real GDP?

Real GDP has four components: consumption (C), investment (I), government purchases (G), and net exports (NX): The wealth effect: how a change in the price level affects consumption (C) • Household consumption is most strongly determine by income, but it is also affected by wealth.

What does it mean when the price level increases?

An increase in the price level decreases the real value of household wealth, which decreases consumption. The interest-rate effect refers to the effect that a change in the price level has on interest rates and, therefore, investment spending and consumption.

What is the Federal Reserve's policy?

1. Monetary policy: The actions the Federal Reserve takes to manage the money supply and interest rates to pursue macroeconomic policy objectives. If the Federal Reserve causes interest rates to rise, investment spending will fall; if it causes interest rates to fall, investment spending will rise.

What is the wealth effect?

The wealth effect refers to the effect that a change in the price level has on wealth and, therefore, consumption. An increase in the price level decreases the real value of household wealth, which decreases consumption.