AGGREGATE DEMAND

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7 Terms

1
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Y axis

Price level

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X axis

Real GDP

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3 theory on why you might have a downward sloping AD/move along AD

  1. Wealth effect

  2. Savings, Interest rate effect

  3. Foreign Rate exchange

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Explain the savings, interest rate effect

PL Down, Saving Up, Supply of Money Up, Interest rate down, Investment Up

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Explain the foreign exchange effect

PL down, Interest rate down, Convert out of the currency to the currency which has higher interest rate, Original currency weakens, NX increases. a

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Components that shift the AD

Components of GDP

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Explain the wealth effect

PL down, Real Wealth Up, Consumption Increase, move right along AD curve.

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