NTEREST RATE (Percent) 15 O PRICE LEVEL 40 80 120 INVESTMENT (Billions of dollars) Demand for Investment 160 I I 1 200 The following graph shows the aggregate demand (AD) and short-run aggregate supply (SRAS) curves in the goods and services market before the Fed implements its contractionary policy. Real GDP (Trillions of dollars) Show the short-run effect of the change in investment demand you illustrated on the previous graph by shifting the appropriate curve on the graph here. ? 240 AD SRAS Demand for Investment 10 AD 101 ++ SRAS Fill in the blanks to interpret the effect of the Fed's policy. When the Fed sells bonds, the amount of money in circulation in the economy decreases drives interest rates up in capital improvements like , which causes businesses to invest new factories and upgraded equipment. The result is a decrease in the equilibrium price level, and in aggregate demand, in the equilibrium level of Real GDP. This
NTEREST RATE (Percent) 15 O PRICE LEVEL 40 80 120 INVESTMENT (Billions of dollars) Demand for Investment 160 I I 1 200 The following graph shows the aggregate demand (AD) and short-run aggregate supply (SRAS) curves in the goods and services market before the Fed implements its contractionary policy. Real GDP (Trillions of dollars) Show the short-run effect of the change in investment demand you illustrated on the previous graph by shifting the appropriate curve on the graph here. ? 240 AD SRAS Demand for Investment 10 AD 101 ++ SRAS Fill in the blanks to interpret the effect of the Fed's policy. When the Fed sells bonds, the amount of money in circulation in the economy decreases drives interest rates up in capital improvements like , which causes businesses to invest new factories and upgraded equipment. The result is a decrease in the equilibrium price level, and in aggregate demand, in the equilibrium level of Real GDP. This
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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