Learn Before
Aggregate Demand Curve
Sources of Aggregate Demand Shocks
Monetary Policy Transmission Mechanism
Effect of the Interest Rate on the Aggregate Demand Curve
The position of the aggregate demand curve is dependent on the prevailing interest rate (). A change in the interest rate affects aggregate investment, which in turn causes a parallel shift in the aggregate demand curve. Specifically, an increase in the interest rate reduces investment and shifts the AD curve downward, while a decrease in the interest rate stimulates investment and shifts the AD curve upward.
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Introduction to Macroeconomics Course
Ch.3 Aggregate demand and the multiplier model - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
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Ch.5 Macroeconomic policy: Inflation and unemployment - The Economy 2.0 Macroeconomics @ CORE Econ
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Effect of Government Spending on the Aggregate Demand Curve
Effect of the Interest Rate on the Aggregate Demand Curve
Investment Function within the Aggregate Demand Curve
Autonomous Demand as the Vertical Intercept of the AD Curve
How Aggregate Demand Shocks Affect Equilibrium
Effect of Autonomous Consumption on the Aggregate Demand Curve
Effect of Exports on the Aggregate Demand Curve
Effect of Autonomous Investment on the Aggregate Demand Curve
Effect of Government Spending on the Aggregate Demand Curve
Effect of the Interest Rate on the Aggregate Demand Curve
An economy experiences a sudden and widespread surge in consumer confidence, driven by positive news about future technological advancements. As a result, households begin to increase their spending on goods and services, even before any actual changes in their current income levels occur. Which of the following best identifies the initial source of this change in the economy?
Analyzing Competing Economic Events
Identifying a Government-Induced Demand Shock
Match each economic event with the primary source of the aggregate demand shock it would create.
A widespread decrease in the general price level throughout an economy, which leads to an increase in the total quantity of goods and services demanded, constitutes a positive aggregate demand shock.
Evaluating the Relative Impact of Different Demand Shocks
Disaggregating Economic Shocks
An unexpected decision by a country's central bank to significantly increase its main policy interest rate is most likely to cause a negative aggregate demand shock by directly reducing the level of autonomous ______.
Pinpointing the Initial Demand Shock
An economy's total spending is subject to various unexpected events. Which of the following scenarios describes an event that would not be classified as an initial source of a shock to aggregate demand?
Role of the Interest Rate in Determining Aggregate Investment
Effect of the Interest Rate on the Aggregate Demand Curve
Monetary Policy Transmission via Asset Prices
Central Bank Communication of the Monetary Policy Transmission Mechanism
Monetary Policy Transmission via Consumer Spending
Monetary Policy's Influence on Economic Confidence
Effect of Interest Rates on Household Spending on Durables and Housing
Link Between Aggregate Demand and Inflation in Monetary Policy Transmission
Figure 5.20: The Monetary Policy Transmission Mechanism
Sequential Flow of the Monetary Policy Transmission Mechanism
Reinforcement of Monetary Policy via the Exchange Rate Channel
Learn After
A central bank decides to significantly decrease its main policy interest rate to stimulate economic activity. Assuming all other factors remain constant, what is the most likely immediate effect on the aggregate demand (AD) curve?
Central Bank Policy and Aggregate Demand
Interest Rate Transmission to Aggregate Demand
An increase in the economy-wide interest rate causes a downward shift in the aggregate demand curve primarily by reducing autonomous consumption spending.
A central bank increases its main policy interest rate to manage the economy. Arrange the following events to show the correct causal sequence of how this action affects the economy's aggregate demand curve.
Match each economic scenario with its most likely impact on the aggregate demand (AD) curve, assuming all other factors are held constant.
The Causal Chain from Interest Rates to Aggregate Demand
Holding all other factors constant, a rise in the economy-wide interest rate is expected to discourage spending on new capital goods, which in turn causes a(n) ________ shift in the aggregate demand curve.
Economic analysts observe a significant, economy-wide decrease in firms' spending on new machinery, equipment, and buildings. Assuming this is the primary change in the economy, which of the following events is the most likely underlying cause for the resulting parallel downward shift of the aggregate demand curve?
Policy Recommendation for Economic Stimulus