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    Changes in aggregate demand

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    How do you expect an aging population will alter an economy's aggregate money demand function? Does it matter if there is simultaneous growth to the proportion of infants in the country?

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    We can state that money demand is directly proportional to Nominal GDP, and inversely related to market interest rates and yields on different financial assets. Thus economic performance in the real sector (changes in income) or activity in financial markets (buying and selling of stocks, bonds, and related financial instruments) can affect the demand for money/cash balances. The aggregate money demand function is:
    Md = [k - v*i]PY.
    Md is money demand in dollars.
    P is the price level.
    Y is real GDP.
    So PY is nominal GDP.
    i is the nominal interest rate.
    Here k is a constant (i.e., a parameter) that indicates how an increase in nominal GDP will affect money demand. This represents the transactions motive for holding money: the more money people are making, the more money they ...

    Solution Summary

    The solution does a great job of explaining the concept of aggregate demand and the impact of aging population on the aggregate demand. The response explains the concepts very well and in detail. It is ideal for students looking to get a detailed understanding of the topic. Overall, an excellent response.