文档介绍：The Influence of ary and Fiscal Policy on Aggregate Demand
Chapter 32
Aggregate Demand
Many factors influence aggregate demand besides ary and fiscal policy.
In particular, desired spending by households and business firms determines the overall demand for goods and services.
Aggregate Demand
When desired spending changes, aggregate demand shifts, causing short-run fluctuations in output and employment.
ary and fiscal policy are sometimes used to offset those shifts and stabilize the economy.
How ary Policy Influences Aggregate Demand
The aggregate demand curve slopes downward for three reasons:
The wealth effect
The interest-rate effect
The exchange-rate effect
How ary Policy Influences Aggregate Demand
For the . economy, the most important reason for the downward slope of the aggregate-demand curve is the interest-rate effect.
The Theory of Liquidity Preference
Keynes developed the theory of liquidity preference in order to explain what factors determine the economy’s interest rate.
According to the theory, the interest rate adjusts to balance the supply and demand for money.
Money Supply
The money supply is controlled by the Fed through:
Open-market operations
Changing the reserve requirements
Changing the discount rate
Money Supply
Because it is fixed by the Fed, the quantity of money supplied does not depend on the interest rate.
The fixed money supply is represented by a vertical supply curve.
Money Demand
Money demand is determined by several factors.
According to the theory of liquidity preference, one of the most important factors is the interest rate.
Money Demand
People choose to hold money instead of other assets that offer higher rates of return because money can be used to buy goods and services.