ECO100Y5 Lecture Notes - Aggregate Demand, Aggregate Supply, Demand Curve
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ECO100Y5 Full Course Notes
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Document Summary
The ae curve shifts in response to the change in the price level. This shift occurs because a change in the price level affects desired consumption expenditure and desired net exports. The relationship between the price level and desired consumption has to do with how changes in the price level lead to a change in household wealth and therefore to changes in desired spending. What money can buy is its real value which depends on the price level. A rise in the price level lowers their real value of money halted by the private sector. A fall in the price level raises the real value of money held by the private sector. And other examples of assets that have fits nominal values include governments and corporate bonds. The bondholder has lent money to the issuer of the bond and receives a repayment from the issuer when the bond matures.
