ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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INTEREST RATE (Percent)
0
40
PRICE LEVEL
I
80
120
160
INVESTMENT (Billions of dollars)
Demand for Investment
1
1
1
I
I
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.
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.
(?)
Real GDP (Trillions of dollars)
240
AD
Demand for Investment
SRAS
101
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
. This
in capital improvements like
in aggregate demand,
in the equilibrium level of Real GDP.
, which causes businesses to invest
new factories and upgraded equipment. The result is a decrease
in the equilibrium price level, and
expand button
Transcribed Image Text:INTEREST RATE (Percent) 0 40 PRICE LEVEL I 80 120 160 INVESTMENT (Billions of dollars) Demand for Investment 1 1 1 I I 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. 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. (?) Real GDP (Trillions of dollars) 240 AD Demand for Investment SRAS 101 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 . This in capital improvements like in aggregate demand, in the equilibrium level of Real GDP. , which causes businesses to invest new factories and upgraded equipment. The result is a decrease in the equilibrium price level, and
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