Author Question: Explain the intuition behind why the aggregate demand curve is downward sloping. Why does an ... (Read 40 times)

pane00 · **on:** Jun 30, 2018

Explain the intuition behind why the aggregate demand curve is downward sloping. Why does an increase in the money supply shift the aggregate demand curve to the right?

What will be an ideal response?

Question 2

Within the IS-LM curve model, an increase in government spending financed by printing money will always

a. have no impact on income.
b. lower income and raise the interest rate.
c. increase the interest rate.
d. lower the interest rate and increase income.
e. increase income.

Dominic · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

According to the quantity theory, holding the velocity and supply for money constant, a lower price level means that the same level of money can conduct more transactions, so the level of transactions increases. An increase in the money supply means that a higher level of transactions can be supported for every value of the price level.

Answer to Question 2

E