which of the following pairs of policies have inconsistent effects on aggregate demand? course hero

What happens to aggregate demand when the government decreases its purchases?

The government decreases its purchases of goods and services, thereby reducing aggregate demand. The Fed's bond traders sell bonds in open-market operations. There is an increase in the price level. Money supply curve shifts to the right

What do most economists use the aggregate demand and aggregate supply model?

. Most economists use the aggregate demand and aggregate supply model primarily to analyze a. short-run fluctuations in the economy. b. the effects of macroeconomic policy on the prices of individual goods.

How can Keynesian economics prevent a negative shift in aggregate demand?

According to Keynesian economics, these programs can prevent a negative shift in aggregate demand by stabilizing employment among government employees and people involved with stimulated industries.

What is aggregate demand (AD)?

Updated Apr 4, 2019. Aggregate demand (AD) is a macroeconomic concept representing the total demand for goods and services in an economy. This value is often used as a measure of economic well-being or growth.

How does fiscal policy affect aggregate demand?

Fiscal policy affects aggregate demand through changes in government spending and taxation. Those factors influence employment and household income, which then impact consumer spending and investment. Monetary policy impacts the money supply in an economy, which influences interest rates and the inflation rate.

What is aggregate demand?

Aggregate demand is an economic measure of the total demand for all finished goods or services created in an economy. It represents the overall demand regardless of the price level, during a specific period of time. Aggregate demand and gross domestic product (GDP) are calculated the same way and move in tandem, ...

How does fiscal policy affect GDP?

In the same way that fiscal and monetary policy impact GDP, they also impact aggregate demand. Fiscal policy impacts government spending and tax policy, while monetary policy influence s the money supply, interest rates, and inflation.

How does the money supply affect the economy?

Monetary policy impacts the money supply in an economy, which influences interest rates and the inflation rate. It also impacts business expansion, net exports, employment, the cost of debt, and the relative cost of consumption versus saving—all of which directly or indirectly impact aggregate demand.

What is expansionary monetary policy?

Expansionary monetary policy involves a central bank buying Treasury notes, decreasing interest rates on loans to banks, or reducing the reserve requirement. All of these actions increase the money supply and lead to lower interest rates. This creates incentives for banks to loan and businesses to borrow.

What is fiscal policy?

Fiscal policy determines government spending and tax rates. Expansionary fiscal policy, usually enacted in response to recessions or employment shocks, increases government spending in areas such as infrastructure, education, and unemployment benefits.

How is money policy enacted?

Monetary policy is enacted by central banks by manipulating the money supply in an economy. The money supply influences interest rates and inflation, both of which are major determinants of employment, cost of debt, and consumption levels.