TAILIEUCHUNG - Lecture Principles of economics - Chapter 34: The influence of monetary and fiscal policy on aggregate demand

In this chapter you will learn the theory of liquidity preference as a short-run theory of the interest rate, analyze how monetary policy affects interest rates and aggregate demand, analyze how fiscal policy affects interest rates and aggregate demand, discuss the debate over whether policymakers should try to stabilize the economy. | 34 The Influence of Monetary and Fiscal Policy on Aggregate Demand Aggregate Demand Many factors influence aggregate demand besides monetary and fiscal policy. In particular, desired spending by households and business firms determines the overall demand for goods and services. Aggregate Demand When desired spending changes, aggregate demand shifts, causing short-run fluctuations in output and employment. Monetary and fiscal policy are sometimes used to offset those shifts and stabilize the economy. HOW MONETARY POLICY INFLUENCES AGGREGATE DEMAND The aggregate demand curve slopes downward for three reasons: The wealth effect The interest-rate effect The exchange-rate effect HOW MONETARY POLICY INFLUENCES AGGREGATE DEMAND For the . economy, the most important reason for the downward slope of the aggregate-demand curve is the interest-rate effect. The Theory of Liquidity Preference Keynes developed the theory of liquidity preference in order to explain what factors determine the .

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• Principles of economics
• Lecture Principles of economics
• Aggregate demand
• Theory of liquidity preference
• Liquidity preference
• Money market
• Ten principles of economics
• People face tradeoffs
• Opportunity cost
• Marginal changes
• Economics of information
• Consumer choice
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• Principles of agricultural economics
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• Stabilize the economy
• Monetary policy