Questions on aggregate demand
Assuming the economy is in an initial equilibrium at X, identify where the new equilibrium will be, if:
- There is an increase in the money supply through additional quantitative easing.
- There is a rise in the base interest rate.
- There is a drop in the economy’s level of saving.
- Imports rise at a greater rate than exports.
- Unemployment increases.
- Why does the AD curve slope downwards?
- Carefully explain how a change in interest rates is transmitted to the real economy.
- Carefully explain how a fall in the value of a country’s currency is transmitted to the real economy.