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  3. question 3) consider the discussion in chapter 13

Question 3) Consider the discussion in chapter 13 of the Jones textbook; answer the questions below...

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Economics

Question 3) Consider the discussion in chapter 13 of the Jonestextbook; answer the questions below in regard to the slope of theAggregate Demand curve. (You may use a diagram for parts (b) and(c) to better explain your answer)   


a. Why does the AD curve slope downward?

b. If the AD curve were more steeply sloped, how would theeconomy respond differently to aggregate demand shocks (shocks toÌ…)?

c. If the AD curve were more steeply sloped, how would theeconomy respond differently to aggregate supply shocks (shocks toÌ…)?

d. What kind of economic changes in the economy wouldlead the curve to be more steeply sloped?

(can you answer part (d) for me?)

Answer & Explanation Solved by verified expert
4.4 Ratings (833 Votes)
AnsAFigure Graph of the aggregate demand curveThe most noticeable feature of the aggregate demand curve isthat it is downward sloping as seen in There are a number ofreasons for this relationship Recall that a downward slopingaggregate demand curve means that as the price level drops thequantity of output demanded increases Similarly as the pricelevel drops the national income increases There are three basicreasons for the downward sloping aggregate demand curve These arePigous wealth effect Keyness interestrate effect andMundellFlemings exchangerate effect These three reasons for thedownward sloping aggregate demand curve are distinct yet they worktogetherThe first reason for the downward slope of the aggregate demandcurve is Pigous wealth effect Recall that the nominal value ofmoney is fixed but the real value is dependent upon the pricelevel This is because for a given amount of money a lower pricelevel    See Answer
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