Aggregate supply & demand: later the long run, lras, will be added to the analysis. A model that explains short-run fluctuations in real: why is the aggregate demand curve downward sloping, gdp has four components: consumption (c), investment (i), government purchases (g), & net, the wealth effect exports (nx). Recall, letting y = gdp, then y=c+i+g+nx: the phenomenon of price level fluctuations affecting consumption is called the wealth effect. : how a change in the price level affects consumption. Lower prices increases perceived wealth & increases consumption. Higher prices has the reverse effect: the interest-rate effect. : how a change in the price level affects investment: the impact of the price level on investment is known as the interest-rate effect. The actions the federal reserve takes to manage the money supply & interest rates to pursue macroeconomic policy objectives. macroeconomic policy objectives, such as high employment, price stability, & high rates of economic growth.