ECO 1102 Lecture Notes - Lecture 18: Canadian Dollar, Liquidity Preference, Aggregate Demand

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ECO 1102 Full Course Notes
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ECO 1102 Full Course Notes
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The influence of monetary and fiscal policy on aggregate demand in this chapter we examine in more detail ho(cid:449) the go(cid:448)e(cid:396)(cid:374)(cid:373)e(cid:374)t"s tools of (cid:373)o(cid:374)eta(cid:396)y a(cid:374)d fiscal policy i(cid:374)flue(cid:374)ce the position of the aggregate- demand curve. We will also see how the tools of monetary and fiscal policy can shift the aggregate- demand curve and, in doing so, affect short-run economic fluctuations. How monetary policy influences aggregate demand the aggregate-demand curve slopes downward for three reasons: the wealth effect, the interest rate effect, the real exchange rate effect. The interest rate effect is the most important reason for the downward slope of the aggregate- demand curve. The theory of liquidity preference the theo(cid:396)y of li(cid:395)uidity p(cid:396)efe(cid:396)e(cid:374)ce: key(cid:374)es"s theo(cid:396)y that the interest rate adjusts to bring money supply and money demand into balance. In the analysis that follows, the expected rate of inflation is held constant.

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