Question

Complete the table by indicating the change in each determinant necessary to increase aggregate demand.

Answer 1

Answer:

The following table lists several determinants of aggregate demand

Complete the table by indicating the change in each determinant necessary to decrease aggregate demand.

Change needed to decrease AD

Wealth

Taxes

Interest rates

The value of domestic currency relative to the foreign currency

Aggregate Demand Curve:

Aggregate demand curve gives a correlation between the Gross Domestic Product demanded and the price level in the economy. A rightward change in the aggregate demand curve indicates an increase in the aggregate demand.

Answer and Explanation:

Change needed to decrease AD

Wealth Decline. Fall in wealth will reduce consumption. Since consumption is a component of aggregate demand, a...

See full answer below.

Answer 2

Answer:

Wealth: decrease

Taxes: increase

Interest Rates: increase

The value of the domestic currency relative to the foreign currency: appreciate

Explanation:

The level of consumer spending depends, in part, on household wealth. As household wealth declines, consumer spending decreases at each price level. A decrease in consumer spending leads to a decrease in aggregate demand.

An increase in taxes reduces households' disposable income. Households will spend less, causing aggregate demand to decrease at each price level.

The real interest rate is a key determinant of investment. Higher interest rates raise the cost of borrowing and discourage business investment. The decrease in investment causes aggregate demand to decrease at each price level.

When the value of the domestic currency appreciates against foreign currencies, citizens of the domestic country will find foreign goods less expensive and foreigners will find domestic products more expensive. The appreciation of the domestic currency causes imports to rise and exports to fall. Because net exports are one component of aggregate demand, this decrease in net exports (exports minus imports) causes a decrease in aggregate demand at each price level.