ECON 2010 Chapter Notes - Chapter 12: Real Business-Cycle Theory, Longrun, Uee
Document Summary
Interest rate effect in investments: when the price level rises, households and firms will try to increase the a mound of money they hold by withdrawing funds from banks, borrowing from banks, or selling financial assets, such as bonds, a higher interest rate raises the cost of borrowing for firms and households, because a higher price level increases the interest rate and reduces investment spending, it also reduces the quantity of goods and services demanded. U. s. exports will become relatively more expensive, and foreign imports will become relatively less expensive: short run aggregate supply curve: shows the relationship in the short run between the price level and the quantity of real gdp supplied by firms, if the price level changes but other variables that affect the willingness of households, firms, and the gov"t to spend are unchanged, the economy will move up or down a stationary aggregate demand curve.
