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

What is modifications to a polymer, What are three modifications to a polym...

What are three modifications to a polymer that can make it transparent? How will these modifications affect the mechanical properties of the polymer?

One least-cost way to make wooden boxes, There is only one least-cost way t...

There is only one least-cost way to make wooden boxes for shipping tomatoes, and any firm that makes them has a cost function given by 2 TC q q = + + 200 .005 .The inverse market d

Gross domestic product, GDP is an important indicator of a nation's economi...

GDP is an important indicator of a nation's economic performance. It has many components which contribute to the growth of the economy. Oil is a minor component of GDP and therefor

State the monetary base and the supply of money, State the Monetary base an...

State the Monetary base and the supply of money - central bank It is not possible for the central bank to print and distribute money - that would increase their debt without i

Solow model in large open economies, In a large open economy, if the econom...

In a large open economy, if the economy has a fiscal expansion, what would happen in the solow model?

Equilibrium and disequilibrium, Equilibrium and Disequilibrium  In phys...

Equilibrium and Disequilibrium  In physical sciences, equilibrium is a state of balance between opposing forces or actions. The meaning of equilibrium in economic theory is exa

Explain about quantity theory of money, Q. Explain about Quantity theory of...

Q. Explain about Quantity theory of money? One of the main elements of the classical model is quantity theory of money. Quantity theory of money connects three important variab

Illustrate about perfectly competitive market firm, Why might a perfectly ...

Why might a perfectly competitive market firm be willing to run at a loss in the short run? The assumptions of a PCM firm should be outlined in order to end that the PCM firm i

MR, Question 1: Consider a two-period, two-person pure exchange economy. Ut...

Question 1: Consider a two-period, two-person pure exchange economy. Utility functions and endowments are given as follows. u1(x0; x1) = (x0x1)2 and e1 = (18; 4) u2(x0; x1) = ln x0

Lower price in restaurant, A restaurant/bar is analyzing its pricing of bee...

A restaurant/bar is analyzing its pricing of beer. It has determined that the price elasticity of demand for beer is 0.8, the cross-price elasticity for wine with respect to the pr

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