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Author Question: Describe how a central bank can increase aggregate demand by influencing expectations. What will ... (Read 87 times)

tichca

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on: Jun 30, 2018
Describe how a central bank can increase aggregate demand by influencing expectations.
 
  What will be an ideal response?

Question 2

The investment component of GDP includes
 
  a. residential construction investment.
  b. inventory investment.
  c. business fixed investment.
  d. Both b and c
  e. All of the above


ghepp

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Reply #1 on: Jun 30, 2018
Answer to Question 1

When households and businesses expect interest rates to remain low, they are more willing to spend now and, even, to borrow, knowing that they will earn little on saving and be able to borrow in the future, at low cost, if they so choose. This willingness to spend and borrow, combined with an increase in the money supply by increasing bank deposits, will increase aggregate demand, so long as the banks can find suitable borrowers.

Answer to Question 2

E


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