Macroeconomic Issues and Analysis: An Overview - Aggregate demand and supply and the level of prices
3 important questions on Macroeconomic Issues and Analysis: An Overview - Aggregate demand and supply and the level of prices
Why does the AD curve slopes downwards? Name 3?
1. Foreign trade effects
2. Real balance effects
3. Interest rate effect
What is the real balance effect?
As the price level rises, the value of people's money balances falls. They therefore spend less in order to increase their money balances and go some way to protecting their real value.
What does AD consist of?
AD = C + I + G + X - M
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