When an economy is experiencing higher real interest rates, wewould expect aggregate demand to ______________...

When an economy is experiencing higher real interest rates, we would expect aggregate demand to ______________ and unemployment to _____________.

shift to the left; rise

shift to the left, fall

shift to the right; rise

not move; not change

If investment spending increases, then according to the Keynesian model:

the aggregate demand shifts right.

the short run aggregate supply curve shifts right.

the aggregate demand curve shifts left.

the short run aggregate demand curve shifts left.

Solutions

Expert Solution

Since investment is the component of aggregate demand, so when the investment spending increase, the aggregate demand curve shift to the right.

Hence option first is the correct answer .

Option first is: aggregate demand shift to the right

When economy experiencing higher real interested, it is expensive to invest more, so investment decreases, hence the production decrease, therefore unemployment rise.

Hence aggregate demand shift to the left, and unemployment rises.

Hence option first is the correct answer

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

economy is experiencing higher real interest rates, business firms will most likely be discouraged from investing...

economy is experiencing higher real interest rates, business firms will most likely be discouraged from investing in: stocks bonds mutual funds capital

Aggregate Demand and Aggregate Supply: Assume that the economy is in short run equilibrium, and experiencing...

Aggregate Demand and Aggregate Supply: Assume that the economy is in short run equilibrium, and experiencing a recession Build the Aggregate Demand/Aggregate Supply graph which corresponds to this situation. Remember to label everything (all curves and axis and equilibrium) and include the long-run potential curve. Suppose The Fed were to make an open-market purchase of $200 million in US Treasury bonds. Is this a shift or a movement along a curve? Which curve? Graph it in such a way that...

Suppose firms expect future output to be higher and future interest rates to be higher. Given...

Suppose firms expect future output to be higher and future interest rates to be higher. Given this information, how will firms alter investment in the current period? Explain.

Draw an aggregate demand (AD)/aggregate supply (AS) graph to illustrate an economy experiencing a recession. Label...

Draw an aggregate demand (AD)/aggregate supply (AS) graph to illustrate an economy experiencing a recession. Label all curves and axes. Also explain, The monetary policy you would use to eliminate the recession you illustrated above, what are the policy impacts on real GDP, employment, and price level? Draw an economy in an economic bubble and explain the fiscal policy you would use to get it out. If the policy you implemented in (c) above succeeds, what is likely to happen...

Using the aggregate demand–aggregate supply model, illustrate (draw a graph) a market economy experiencing a recessionary...

Using the aggregate demand–aggregate supply model, illustrate (draw a graph) a market economy experiencing a recessionary gap (include aggregate demand, short-run and long-run aggregate supply curves). Label all parts of the graph. In your own words, explain how government can close the recessionary gap? What would be the effect on price and real GDP?

Equilibrium interest rate is achieved in the money market when aggregate demand for real monetary assets...

Equilibrium interest rate is achieved in the money market when aggregate demand for real monetary assets equals the supply of real monetary assets. a. Write down the condition required for equilibrium in the money market using real quantities of monetary assets. b. The aggregate real money demand function is given as L(R, Y). For a given level of income, real money demand decreases as interest rate increases. Explain why L is negatively related to interest rates. How is the real...

The economy of Lower Slobovia is currently experiencing an interest rate of 12% and a real...

The economy of Lower Slobovia is currently experiencing an interest rate of 12% and a real GDP of 5,000. The level of aggregate demand puts in the Keynesian range of the country's aggregate supply curve and perfectly elastic range of the country's labor supply curve. Suppose the government has announced its intent to achieve a target interest rates of 6% and a real GDP level of $10,000. Further assume this action still leave the economy in the perfectly elastic ranges...

how are interest rates related to investment and invrstment to aggregate demand

If real U.S. interest rate is higher than real European interest rate, the demand for U.S....

If real U.S. interest rate is higher than real European interest rate, the demand for U.S. Dollar would likely ____, and the supply of Euros to be exchanged for dollars would likely ____, other factors held constant. 1 point a. increase; increase b. increase; decrease c. decrease; increase d. decrease; decrease

Explain how interest rates affect the level of investment demand in an economy (Think about nominal/real...

Explain how interest rates affect the level of investment demand in an economy (Think about nominal/real rates, anticipated and unanticipated inflation).

Subjects