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

Liberalisation and changing sources of fdi, Liberalisation and Changing Sou...

Liberalisation and Changing Sources of FDI: European countries  had been major sources of FDI inflows  to India until 1990. However, their relative importance declined in the

Kinked demand curve, disuss with an aid of a diagram the kinked demand cur...

disuss with an aid of a diagram the kinked demand curve

Determination of all the endogenous variables, Q. Determination of all the ...

Q. Determination of all the endogenous variables? Determination of all the endogenous variables in the AS-AD model Determination of P and Y: Prices and

Determine how global competition impacts your firm, • Select Facultyapprove...

• Select Facultyapproved publicly traded firm (prefer from Middle East or international unique company) which allows access to it financial information (inform me by email which co

Classical model and the long-term phillips curve, Q. Classical model and th...

Q. Classical model and the long-term Phillips curve? In classical model, L and real wage are determined from equilibrium conditions in the labor market. L and W/P, hence, are o

Moodys and standard & poors study corporations, Firms such a Moody's and St...

Firms such a Moody's and Standard &Poor's study corporations that issue bonds. They publish "ratings" for the bonds- evaluation of the likelihood of default. Suppose these rating c

Equilibrium in both the goods and in the money market, Equilibrium in both ...

Equilibrium in both the goods and in the money market  If both the goods- and the money markets are to be in equilibrium... ...if P increases, Y must fal

Investments has a larger future value, Which of the following investments h...

Which of the following investments has a larger future value: Investment A an $1,000 investment earning 5% per year for 6 years? Or Investment B a %500 investment earning 10% per y

Why are the imports subtracted - nominal gdp, Why are the imports subtracte...

Why are the imports subtracted when GDP is measured in expenditure approach? If you woke up in the working & found that nominal GDP has doubled overnight. what statistic wou

Show the equations of the as-ad model, Q. Show the equations of the AS-AD m...

Q. Show the equations of the AS-AD model? The equations of the AS-AD model To précis the AS-AD model, we can have a glance at its equations. IS-LM model was "solved" by s

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