Purchase Solution

Aggregate Demand Curve and Federal Reserve Policy

Not what you're looking for?

Ask Custom Question

1. A change in the real money supply can result either from a change in the normal money supply through Federal Reserve policy (holding the price level constant) or from a change in the price level ( holding the normal money supply constant). The change in the nominal money supply causes a shift of the aggregate demand curve, whereas a change in the price level causes a movement along the aggregate demand curve. Explain.

2. If the U.S. economy is operating near full employment and the exchange rate increases (the dollar appreciates), Explain why the Federal reserve will be less inclined to raise interest rates.

Purchase this Solution

Solution Summary

The aggregate demand curve and federal reserve policies are determined.

Solution Preview

1. The aggregate demand curve is formed by mapping price levels to demand. As prices increase, the level of demand will fall (people cannot afford to buy as much at higher prices), holding everything else constant. This is why the demand curve is downward sloping. So when prices change, we don't need to create a new demand curve. We just find the point along the demand curve that is ...

Purchase this Solution


Free BrainMass Quizzes
Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.