ECON 102 1st Edition Lecture 24 Outline of Last Lecture 1 Investment Spending Outline of Current Lecture I Aggregate Demand Curve a Factors influencing shif Current Lecture The aggregate demand curve shows the relationship between the aggregate price level and the quantity of aggregate output demanded by households businesses the government and the rest of the world It is downward sloping for two reasons o The first is the wealth effect of a change in the aggregate price level a higher aggregate price level reduces the purchasing power of households wealth and reduces consumer spending o The second is the interest rate effect of a change in aggregate the price level a higher aggregate price level reduces the purchasing power of households money holdings leading to a rise in interest rates and a fall in investment spending and consumer spending The aggregate demand curve shifs because of o Changes in expectations o Wealth o The stock of physical capital o Government policies Fiscal Policy Monetary Policy Changes in Expectations o If consumers and firms become more optimistic aggregate demand increases o If consumers and firms become more pessimistic aggregate demand decreases Changes in wealth o If the real value of household assets rises aggregate demand increases o If the real value of household assets falls aggregate demand decreases Fiscal Policy These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute o If the government increases spending or cuts taxes aggregate demand increases o If the government reduces spending or raises taxes aggregate demand decreases Spending Taxes Monetary Policy o If the central bank increases the quantity of money aggregate demand increases o If the central bank reduces the quantity of money aggregate demand decreases Money Supply Interest Rates
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