 Show Chapter 32 Homework 1.Aggregate _________ is a schedule or curve that shows the amount of real GDP that buyers collectively desire to purchase at each possible price level. a.Demand 2.The _________ is when a higher price level reduces the purchasing power of the public’s accumulated savings balances. a.Real-balances effect 3.Changes in consumer spending, investment, government spending and net export spending will: a.Shift the aggregate demand curve 4.The total dollar value of all assets owned by consumers in the economy less the dollar value of their liabilities is called consumer ________ a.Wealth 5.A decline in investment spending at each price level will shift the aggregate demand curve to the ________. a.Left 6.A schedule or curve that shows the amount of a nation’s output (real GDP) that buyers collectively desire to purchase at each possible price level is called a.Aggregate demand 7. How is the real-balances effect defined? a.A higher price level reduces the purchasing power of the public’s accumulated savings balances. 8.Investment spending refers to purchases of which of the following? a.Capital goods 9. Which of the following are the four components or determinants of aggregate demand? a.Government spending b.Net export spending c.Investment spending d.Consumer spending 10.A decrease in investment spending at each price level will shift the aggregate ______ a.Demand curve to the left 11.Consumer wealth is defined as the total value of _______ a.Assets minus the total value of liabilities 12.An increase in real interest rates will _______ investment spending and ______ borrowing costs a.Decrease b.Increase 13.A decline in investment spending at each price level will _____. a.Shift the aggregate demand curve to the left 14.A decrease in the money supply is likely to cause a(n) _____ interest rates, and subsequent _______ in investments and aggregate demand a.Increase b.Decreases 15.The aggregate demand curve will shift to the _____ when there is a reduction in government purchases. a.Left What happens to the aggregate demand if real interest rate increases?When interest rates rise, it becomes more “expensive” to borrow money. That borrowed money would typically go toward consumer expenditures and capital investment, and so these two sectors diminish under higher interest rates. Therefore aggregate demand decreases, per the equation.
What happens to aggregate demand when investment spending increases?If Investment increases, then ceteris paribus, AD will increase. The increase in aggregate demand will lead to higher economic growth and possibly inflation.
What affect do real interest rates have on aggregate demand in macroeconomics?Therefore, higher interest rates will tend to reduce consumer spending and investment. This will lead to a fall in Aggregate Demand (AD). If we get lower AD, then it will tend to cause: Lower economic growth (even negative growth – recession)
What is the effect of increase in aggregate income on aggregate demand AD curve?Income and Wealth: As household wealth increases, aggregate demand usually increases as well. Conversely, a decline in wealth usually leads to lower aggregate demand. Increases in personal savings will also lead to less demand for goods, which tends to occur during recessions.
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An increase in real interest rates will ______ investment spending and ______ aggregate demand.
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