Aggregate demand with inflation, Macroeconomics

Assignment Help:

Aggregate demand with inflation

In previous versions of Keynesian model, Components of aggregate demand did not depend on P. In IS-LM and in AS-AD models, investments depended on nominal interest rate R.

We argued that investment in fact relies on the real interest rate r but as R = r when πe = 0, we could make it a function of R.  

When πe no longer is zero and real interest rate r = R - πe, we must write I(r) or I(R - πe). We must also write YD(Y, r) or YD(Y, R - πe). As inflation expectations are exogenous (given), it's still the case that YD relies negatively on R. Please note that if there is an equal increase in expected inflation and in nominal interest rate, real interest rate is unaffected and so is aggregate demand andinvestments.


Related Discussions:- Aggregate demand with inflation

Marginal tax rates imposed on individuals, Compared with the situation befo...

Compared with the situation before 1981, the marginal tax rates imposed on individuals and families with high incomes are now lower. What was the top marginal personal income tax r

Money, determinants of money supply

determinants of money supply

Determine a decrease in lump sum taxes, Using Simple Keynesian Model, discu...

Using Simple Keynesian Model, discuss the effect of the following: a) An increase in govt. expenditure. b) A decrease in lump sum taxes. In this context compare the govt.

Enumerate in detail about the financial markets, The Government, Rest of th...

The Government, Rest of the World and the financial markets Total expenditure of the government may be divided into two parts: transfers to the private sector and consumpti

Telemarketer makes six phone calls, A telemarketer makes six phone calls pe...

A telemarketer makes six phone calls per hour and is able to make a sale on 30 percent of these contacts. During the next two hours, find: A) The probability of making exactly four

What do you mean by the long run outcome, Imagine a firm with the same cost...

Imagine a firm with the same cost structure but in each of the four market structures: Competitive, Monopolistically Competitive, Oligopoly, and a Monopoly. Using the concepts of c

Pseudoreplication, Give your own example of "pseudoreplication" (sensu Hurl...

Give your own example of "pseudoreplication" (sensu Hurlbert 1984) in an experiment. How does pseudoreplication cause problems for correct inferences from experiments?

Neoclassical view, Roles of government in controlling market forces under n...

Roles of government in controlling market forces under neoclassical view

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

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!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd