Econ 201 Exam 4 : Econ 201 Exam 4 Study Guide: Updated Solution

Why the AD Curve Slopes Downward (Ans- 1. wealth effect 2. interest rate effect 3. exchange rate effect wealth effect (Ans- the change in the quantity of aggregate demand that results from wealth changes due to price-level changes interest rate effect (Ans- occurs when a change in the price level leads to a change in interest rates and, therefore, in the quantity of aggregate demand foreign price effect (Ans- If prices rise in the US and stay the same elsewhere then X goes down and M goes up Why the AD curve might shift (AnsChanges in C- Stock market boom/crash - Preferences re: consumption/saving tradeoff - Tax hikes/cuts Changes in I - Firms buy new computers, equipment, factories - Expectations, optimism/pessimism - Interest rates, monetary policy