Aggregate demand

Question 1

Assuming the economy is in an initial equilibrium at X, identify where the new equilibrium will be, if:Fiscal policy

  1. There is an increase in the money supply through quantitative easing.

  2. There is a rise in interest rates.

  3. There is a reduction in savings.

  4. Imports rise above exports.

  5. Unemployment rises.

Question 2

  1. Why does the AD curve slope downwards?

  2. Carefully explain how a change in interest rates is transmitted to the real economy.

  3. Carefully explain how a fall in the value of Sterling is transmitted to the real economy.