Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Aggregate Demand Policies
Both fiscal and monetary policy changes shift the AD curve. Let us see how, starting with a fiscal expansion. See figure 6.2. In the upper panel, the initial LM and IS schedules correspond to a given nominal quantity of money and the price level P0. The equilibrium is at point E and there is a corresponding point on the AD schedule in the lower panel. When there is a fiscal expansion, the IS schedule shifts outward and to the right. At the initial price level there is a new equilibrium at point Elwith higher interest rates and higher level of income - and spending. Thus at the initial level of prices, P0, equilibrium income and spending are now higher. This is shown by plotting point El in the lower panel. Point El is a point on the new aggregate demand curve ADl. Doing a similar exercise at other points on the original AD leads us to the derivation of the new aggregate demand curve ADl. We see that the aggregate demand curve has shifted to the right because of fiscal expansion. A fiscal contraction produces the opposite result.
Figure 1
Now, let us study the effect of change in monetary policy on the aggregate demand curve. See figure 6.3. An increase in the nominal stock of money implies a higher real money stock at each level of prices and thus shifts the LM curve to LMl in the upper panel.
The equilibrium level of income rises from Y0 to Yl at the initial price level, P0. Correspondingly, the AD curve moves out to the right, to ADl, with point El in the lower panel corresponding to El in the upper panel. The AD curve shifts up in exactly the same proportion as the increase in the money stock. For instance, at point K the price level, Pl, is higher than P0 in the same proportion that the money supply has increased. Real balances at K and ADl are therefore the same as at E on AD.
Figure 2
Suppose P(X1)=.75 and P(Y2/X1)=.40. What is the joint probability of X1 and Y2?
Q. Demand for money and GDP? The demand for money also relies on the GDP as GDP is closely associated to national income. If you choose to hold a fixed proportion of your wealt
Relate overnight interest rates with interest rates By controlling overnight interest rates, the central bank will affect the interest rates with longer maturity. The reason f
Money is anything which is acceptable in settlement of a debt. But, paradoxically, the main asset used to settle debts in modern economies is other debts. After all, bank deposits
What is the meaning of Deindustrialisation Deindustrialisation or structural decline of many manufacturing industries along with activities like coal mining is associated with
The entire market is capture by a single firm which can produce at a constant average and marginal cost of AC = MC = 10. The firm faces a market demand curve given by Q = 60 ? P.
Q. Show the AD curve over time? With inflation, AD curve will no longer be stable over time. In its place, it will glide upwards or downwards at a rate determined by growth rat
Cornell University conducted a study of wage differentials between men and women reported that one reason that men's wages are higher is that men tend to have more years of work ex
what is real and norminal interest rates?
Q. Consumption function in the AS-AD model? Consumption. Suppose that P increases by say 10% whereas real GDP (Y) is constant. Nominal GDP and nominal national will now have
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd