Reference no: EM131392755
Four reasons behind the downward slope to the Aggregate Demand Curve! The price level and aggregate demand are negatively related because of:
List and discuss four “effects”
For example, one of the reasons for the downward slope of the demand curve (that is, the negative relationship between the price level and C + I + G + NX) is the interest rate effect. Demonstrate you understand the interest rate effect by completing the following problems:
A) The opportunity cost of holding money is _____________ .
B) Assume there is a sudden negative supply shock in the economy that lead to a reduction in short run aggregate supply (say a drought, or higher wages throughout the economy). Below, draw a money demand and supply graph to illustrate the effect of the higher price level on the money market (remember, the “price” of money is the interest rate):
Referring to your graph above, outline the three steps that lead from an increase in the price level to a change in aggregate demand (AD):
The higher price level leads to:
ii_______________________________, and
iii. the following change in aggregate demand:________________________________________.
C) What type of spending that is most affected by the lowering of interest rates in the economy? Also state whether the spending is higher or lower as a result of lower interest rates.
D) Investment is an important (and volatile) component of GDP. List 5 specific purchases that would be included as “Investment” when calculating GDP = C + I + G + NX.
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Consider pure exchange economy with two individuals
: Consider a pure exchange economy with two individuals (call A and B) and two goods (called X and Y ). Individual A has 120 units of good Y but no good X, and A's utility function is given by UA(xA; yA) = ln xA +ln yA. Individual B has 90 units of goo..
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Unemployment using the basic phillips curve relationship
: Explain the relationship between wages/prices and unemployment using the basic Phillips Curve (PC) relationship. Explain Friedman and Phelps modification to the basic PC, their view of stagflation, and the concept of NAIRU.
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Monetary policy with the of monetary theory
: Review the working of US Monetary Policy with the of monetary theory of the times involved. How do you reconcile the behavior of policy makers and theoretical developments of macroeconomics? Explain in detail.
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Are such adjustments effective in the long-run
: How do adjustments in domestic interest rates help affect international investment flows? Are such adjustments effective in the long-run? Explain and cite your work (and replies).?
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Most affected by the lowering of interest rates in economy
: Four reasons behind the downward slope to the Aggregate Demand Curve! The price level and aggregate demand are negatively related because of: What type of spending that is most affected by the lowering of interest rates in the economy? Also state whe..
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Significance of adaptive and rational expectation hypothesis
: What is the theoretical significance of the Adaptive and Rational expectation hypothesis? Explain with the help of the Phillips Curve, the effectiveness of policy actions when expectation formation is known. Examine the role of this for Reagan admini..
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Telecommunications electric power commercial banks
: Discuss the economics justifications for a merger. In particular, how might these reasons apply to companies now merging in the following industries oil automobiles telecommunications electric power commercial banks
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Discuss the economics justifications for a merger
: Discuss the economics justifications for a merger. In particular, how might these reasons apply to companies now merging in the following industries oil automobiles telecommunications electric power commercial banks
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Appropriate fiscal policy to ensure stability
: The US government is over $19 trillion in debt. Is the debt a burden on future generations? Explain. If one is concerned about the rise in US government debt, what would be an appropriate fiscal policy to ensure stability?
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