EC140 Chapter Notes - Chapter 23: Aggregate Demand, G-Dragon
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Chapter 23: output and prices in the short run. An increase in p reduces the real value of money holdings. A fall in p raises the real value of money holdings. Changes in p also affect the wealth of bondholders and bond issuers. But there is no change in aggregate wealth (only if bonds are not held by foreigners) An increase in p thus reduces private-sector wealth: There is also an effect on net exports: An increase in p reduces desired aggregate expenditure: ae shifts down, equilibrium. The aggregate demand (ad) curve relates equilibrium real gdp to the price level. For any given p, the ad curve show the level of real gdp for which desired aggregate expenditure. For any given p, the ad curve shows the level of real gdp for which desired aggregate expenditure equals actual gdp. Changes in the price level cause movement along the ad curve.
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