ECO100Y5 Chapter Notes - Chapter 12: Price Level, Human Capital, Stabilization Policy
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ECO100Y5 Full Course Notes
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Document Summary
Chapter 12 aggregate demand and aggregate supply. The aggregate demand curve is downward sloping because of the wealth effect of a change in the aggregate price level and the interest rate effect of a change in the aggregate price level. The aggregate demand curve shows how income-expenditure equilibrium gdp changes when the aggregate price level changes. Changes in consumer spending caused by changes in wealth and expectations about the future shift the aggregate demand curve. Changes in investment spending caused by changes in expectations and by the size of existing stock of physical capital also shift the aggregate demand curve. Fiscal policy affects aggregate demand directly through government purchases and indirectly through changes in taxes or government transfers. Monetary policy affects aggregate demand indirectly through changes in interest rate. The aggregate supply curve illustrates the relationship between the aggregate price level and the quantity of aggregate output supplied.
