a)
The impact on aggregate demand.
a)
Explanation of Solution
An increase in the interest rate due to
The aggregate demand curve represents the relationship between the price level and aggregate quantity demanded by households, firms, the government, and foreign nations.
A change in aggregate price level while keeping other factors constant causes a movement along the aggregate demand curve.
Aggregate demand curve shifts due to the following changes:
- Changes in expectations
- Changes in wealth
- Change in the size of the existing stock of physical capital
- When government policies change.
b)
The impact on aggregate demand.
b)
Explanation of Solution
A fall in the value of money causes an upward movement along the aggregate demand curve. It doesn’t shift the demand curve.
c)
The impact on aggregate demand.
c)
Explanation of Solution
News of a worse expected situation in the job market lowers the aggregate demand in the market and thus causes a leftward shift in the aggregate demand curve.
d)
The impact on aggregate demand.
d)
Explanation of Solution
A fall in tax rate represents the expansionary fiscal policy, leading to higher aggregate demand because a lower tax rate reflects a higher disposable income. When people have high disposable income in their hands, the spending on consumer goods increases and causes the aggregate demand in the market to increase, leading to a rightward shift in the aggregate demand curve.
e)
The impact on aggregate demand.
e)
Explanation of Solution
An increase in the value of assets due to a fall in the aggregate price level causes a downward movement along the aggregate demand curve. It doesn’t shift the demand curve.
f)
The impact on aggregate demand.
f)
Explanation of Solution
An increase in the actual value of assets due to a surge in real estate causes the aggregate demand to expand in the market because a higher value of assets representing the higher
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Chapter 17 Solutions
Krugman's Economics For The Ap® Course
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