ECO 1102 Lecture Notes - Lecture 9: Automatic Stabilizer, Fixed Exchange-Rate System, Liquidity Preference

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ECO 1102 Full Course Notes
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ECO 1102 Full Course Notes
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Chapter 15: the inluence of monetary and fiscal policy on aggregate demand. The inluence of monetary and fiscal policy on aggregate demand. In this chapter we examine in more detail how the government"s tools of monetary and iscal policy inluence the posiion of the aggregate-demand curve. We will also see how the tools of monetary and iscal policy can shit the aggregate-demand curve and, in doing so, afect short-run economic luctuaions. The aggregate-demand curve slopes downward for three reasons: the wealth efect, the interest rate efect*, the real exchange rate efect. The interest rate efect is the most important reason for the downward slope of the aggregate-demand curve. The theory of liquidity preference: keynes"s theory that the interest rate adjusts to bring money supply and money demand into balance. In the analysis that follows, the expected rate of inlaion is held constant. The bank of canada alters the money supply using two methods:

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