Aggregate demand

Question 1

Aggregate demand Assuming the economy is in an initial equilibrium at X, identify where the new equilibrium will be, if:

1. There is an increase in the money supply through quantitative easing.

2. There is a rise in interest rates.

3. There is a reduction in savings.

4. Imports rise above exports.

5. Unemployment rises.

Question 2

1. Why does the AD curve slope downwards?

2. Carefully explain how a change in interest rates is transmitted to the real economy.

3. Carefully explain how a fall in the value of Sterling is transmitted to the real economy.