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MGEB06H3 Chapter Notes - Chapter 10: Expenditure Function, Keynesian Cross, Aggregate Demand

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School
UTSC
Department
Economics for Management Studies
Course
MGEB06H3
Professor
Jack Parkinson

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Document Summary

Chapter 10 aggregate demand i: building the is-lm model. Is-lm model is the leading interpretation of keynes s theory. The goal of the model is to show what determines national income for any given price level. Is-lm model can show what causes income to change in the short run when the price level is fixed. Or it can show what causes aggregate demand curve to shift. For a given price level, national income fluctuates because of shifts in the aggregate demand curve. Is curve stands for investment and saving and it represents what s going on in the market for goods and services. Lm stands for liquidity and money and the curve represents what s happening to the supply and demand for money. Because the interest rate influences both investment and money demand, it is the variable that links the two halves of the is-lm model. 10-1 the goods market and the is curve.

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Related Questions

The effect of an increase in the price level on the aggregate demand curve is represented by a:

a. shift to the right of the aggregate demand curve.

b. shift to the left of the aggregate demand curve.

c. a movement to the left along a given aggregate demand curve.

d. a movement to the right along a given aggregate demand curve.

ย 

What is aggregate demand?

  1. What is Aggregate Demand?

    1. Aggregate Demand refers to the total expenditure on domestic goods and services within an economy. The Aggregate Demand (AD) thus represents the relationship between the total quantity of output demanded in the economy and the overall price level. Like the basic demand curve, the AD curve also slopes downward to reflect the inverse relationship between aggregate price and aggregate quantity demanded.

1. Discuss the difference between an increase in the aggregate demand curve and an increase in the quantity of real GDP demanded. Include a discussion of how the price level relates to each event.

2. What are the major factors that determine investment, and what impact does each have on aggregate demand?

3. Describe the difference between a microeconomic demand curve and an aggregate demand curve.

4. The aggregate demand curve portrays the relationship between the price level and real GDP. What are the three reasons this relationship is a negative or inverse relationship? Provide brief illustrations of each.

5. What role do imports play in aggregate demand? Under which conditions will changes in imports expand aggregate demand? Reduce aggregate demand?

6. Shifts in the Aggregate Supply Curves

List and discuss the things that will make the Short Run Aggregate Supply curve shift to the left or to the right. Illustrate.

List and discuss the things that will make the Long Run Aggregate Supply curve shift to the left or to the right. Illustrate.

7. What is the natural level of output?