price levels. Assume that this effect is independent of the price level, that is, the AD curve has a parallel shift. An expansionary monetary policy causes the quantity of bank reserves in the economy to ________(INCREASE/DECREASE) , which drives interest rates _______ (UP / DOWN) . As a result, businesses invest______(MORE/LESS) in capital improvements such as new factories and equipment. This leads to ________(AN INCREASE. A DECERASE) in aggregate demand, the extent of which is determined by the simple spending multiplier.
price levels. Assume that this effect is independent of the price level, that is, the AD curve has a parallel shift. An expansionary monetary policy causes the quantity of bank reserves in the economy to ________(INCREASE/DECREASE) , which drives interest rates _______ (UP / DOWN) . As a result, businesses invest______(MORE/LESS) in capital improvements such as new factories and equipment. This leads to ________(AN INCREASE. A DECERASE) in aggregate demand, the extent of which is determined by the simple spending multiplier.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
On the following graph, show the effect of the change in investment demand on the AD curve once the multiplier process has run its course. Use the green curve (triangle symbol) to plot the new AD curve at price levels of 40 and 140.
Hint: Use the new quantity of investment demanded you found in the Market for Investment and the multiplier to determine the exact change in aggregate demand at both price levels. Assume that this effect is independent of the price level, that is, the AD curve has a parallel shift.
An expansionary monetary policy causes the quantity of bank reserves in the economy to ________(INCREASE/DECREASE) , which drives interest rates _______ (UP / DOWN) . As a result, businesses invest______(MORE/LESS) in capital improvements such as new factories and equipment. This leads to ________(AN INCREASE. A DECERASE) in aggregate demand, the extent of which is determined by the simple spending multiplier.
Transcribed Image Text:they d
PRICE LEVEL
Candyck
160
140
120
100
80
60
40
20
0
0
89
The Market for Goods and Services
*
NE
120
180
240
300
360
REAL GDP (Billions of Dollars)
wpin
1
+
AD
420
480
436
New AD
?
4
hich driv
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