PRINC OF ECONOMICS PKG >CUSTOM<
7th Edition
ISBN: 9781305018549
Author: Mankiw
Publisher: CENGAGE C
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Chapter 34, Problem 1QR
To determine
Liquidity preference theory and downward sloping of aggregate demand.
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Why does a reduction in aggregate demand reduce real output, rather than the price level? Why might a full-strength multiplier apply to a decrease in aggregate demand?
Using a diagram, show and explain why rising prices reduce the multiplier effect of an increase in aggregate demand.
In one or two sentences, explain why Keynesian economists believe that increasing the money supply will be effective at increasing aggregate demand in the short run.
Chapter 34 Solutions
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- Explain the likely effects of a U.S. boom on the demand for Canadian exports. What would be the effect on Canadian aggregate demand? Suppose the Bank of Canada viewed its monetary policy as being appropriate for keeping GDP of Canada close to potential GDP. What would you then predict to be the Central Bank's response to the foreign boom in U.S.?arrow_forwardWhat are three factors that help explain the slope of the aggregate demand curve? What is the most important factor? Why?arrow_forwardExplain in words how investment multiplier and the interest sensitivity of aggregate demand affect the slope of the IS curve.arrow_forward
- Explain with example how a reduction in taxes without a reduction in government spending may have no impact on aggregate demand.arrow_forwardIf the economy’s labor force is increasing and also becoming more productive, what will happen to the aggregate supply curve?arrow_forwardWhich of the following are likely to increase investment and as a result, aggregate demand? A) falling real interest rates B) rising real interest rates C) increased business taxesarrow_forward
- Explain fully why the aggregate demand curve has a negative slope.arrow_forwardDoes the level of stocks ,held by firms, change when aggregate demand falls short of aggregate supply?arrow_forwardWhat effect will a successful supply-side policy have on the aggregate demand curve? A) Leftward shift B) Rightward shift C) Movement down along D) Movement up alongarrow_forward
- Examine the following policies and determine which would decrease the level of aggregate demand. Decreasing in government spending and decreasing taxes Increasing investment and increasing government spending Increasing consumption and decreasing taxes Decreasing in government spending and increasing in taxesarrow_forwardHow did the large decrease in aggregate demand during the first and second quarters of 2020 (the Coronavirus demand shock) affect real GDP and the price level? Explain how and why the spread of the Coronavirus made an impact on consumer and business investment spending as well as overall aggregate demand? Be specific.arrow_forwardA visual/graphic representation of how a decrease in consumer spending shifts the aggregate demand curve.arrow_forward
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