Econ 9e One Click ch27
Econ 9e One Click ch27
Econ 9e One Click ch27
By
Karl E. Case,
Ray C. Fair &
Sharon M. Oster
2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
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27
Aggregate Demand
in the Goods and
Money Markets
Prepared by:
Fernando & Yvonn Quijano
2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
Aggregate Demand
in the Goods and
Money Markets
27
11
CHAPTER OUTLINE
Planned Investment and the Interest Rate
Other Determinants of Planned Investment
Planned Aggregate Expenditure and the
Interest Rate
Equilibrium in Both the Goods and Money
Markets
Policy Effects in the Goods and Money
Markets
Expansionary Policy Effects
Contractionary Policy Effects
The Macroeconomic Policy Mix
The Aggregate Demand (AD) Curve
The Aggregate Demand Curve: A Warning
Other Reasons for a Downward-Sloping
Aggregate Demand Curve
Aggregate Expenditure and Aggregate
Demand
Shifts of the Aggregate Demand Curve
Looking Ahead: Determining the Price
Level
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FIGURE 27.2 The Effect of an Interest Rate Increase on Planned Aggregate Expenditure
An increase in the interest rate from 3 percent to 6 percent lowers planned aggregate
expenditure and thus reduces equilibrium income from Y0 to Y1.
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r I AE Y
r I AE Y
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Y M d r
Y M r
d
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FIGURE 27.3 Links Between the Goods Market and the Money Market
Planned investment depends on the interest rate, and money demand depends on aggregate output.
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G Y M d r I
Y increases less than if r did not increase
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M s r I Y M d
r decreases less than if M
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G or T Y M d r I
Y decreases less than if r did not decrease
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M s r I Y M d
r increases less than if M
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Contractio nary
( G or T )
( G or T )
Expansiona ry
( M s )
Y , r ?, I ?, C
Y ?, r , I , C ?
Contractio nary
( M s )
Y ?, r , I , C ?
Y , r ?, I ?, C
Monetary
Policy
Key :
: Variable increases.
: Variable decreases.
? : Forces push the variable in different directions . Without additional information, we cannot
specify which way the variable moves.
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FIGURE 27.5 The Impact of an Increase in the Price Level on the EconomyAssuming No
Changes in G, T, and Ms
This figure shows that when P increases, Y decreases.
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aggregate demand
aggregate demand (AD) curve
contractionary fiscal policy
contractionary monetary policy
crowding-out effect
expansionary fiscal policy
expansionary monetary policy
goods market
interest sensitivity or insensitivity of planned
investment
money market
policy mix
real wealth, or real balance, effect
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APPEND IX A
THE IS-LM DIAGRAM
THE IS CURVE
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APPEND IX A
THE IS-LM DIAGRAM
THE LM CURVE
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APPEND IX A
THE IS-LM DIAGRAM
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APPEND IX A
THE IS-LM DIAGRAM
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APPEND IX A
THE IS-LM DIAGRAM
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