Page 236 - Economics

CONFIRMING PAGES

CHAPTER TEN APPENDIX 207

Appendix Summary

1. A change in the price level alters the location of the aggre- 2. With the price level held constant, increases in consump-
gate expenditures schedule through the real-balances, inter- tion, investment, government, and net export expenditures
est-rate, and foreign purchases effects. The aggregate shift the aggregate expenditures schedule upward and the
demand curve is derived from the aggregate expenditures aggregate demand curve to the right. Decreases in these
model by allowing the price level to change and observing spending components produce the opposite effects.
the effect on the aggregate expenditures schedule and thus
on equilibrium GDP.

Appendix Study Questions

1. Explain carefully: “A change in the price level shifts the ag- aggregate expenditures model? What would be the outcome
gregate expenditures curve but not the aggregate demand for real GDP? How would you show this fall in investment in
curve.” the aggregate demand–aggregate supply model, assuming the
2. Suppose that the price level is constant and that investment economy is operating in what, in effect, is a horizontal section
decreases sharply. How would you show this decrease in the of the aggregate supply curve?

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