Economics
5th Edition
ISBN: 9781319066604
Author: Paul Krugman, Robin Wells
Publisher: Worth Publishers
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Question
Chapter 27, Problem 5P
To determine
Concept Introduction:
Aggregate
Shift in Aggregate Demand Curve: There are several factors on which the shifting of demand curve depends. Some of them are:
- Changes in expectation: when consumers are more confident about future then AD curve shifts in the right direction and vice versa.
- Changes in wealth: when the wealth of individual increases which means real value of assets increases then the AD curve shifts in right direction and when it decreases then it shifts leftward.
- Size of stock of physical capital: when the size of stock is small then AD curve shifts rightward and vice versa.
- Fiscal policy: It includes government expenditure and taxes. When government expenditure is increased or taxes are decreased then AD curve shifts rightward and vice versa.
Monetary policy: It includes money supply changes. When money supply increases AD curve shifts rightward and vice versa.
Inflation indexed bond: It is a type of bond in which the rate of interest gets adjusted according to existing inflation in the economy.
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