Aggregate demand Scenarios

Exercises
Explain how each of the following entries may affect AD. Assume that the ceteris paribus holds.

1. Households and firm debt levels rise significantly.

2. Households become more optimistic

3. The exchange rate appreciates

4. The government decides to overhaul all infrastructure such as highways and bridges

5. The central decreases interest rates

 6. Households demand more money to make the same transactions because of a higher price
level and the resulting increase in the interest rate lowers their spending.

7. A major trading partner resorts to increased levels of trade protection.

8. Personal taxation increases

9. Our major trading partner enters a severe recession.

10. Expectations concerning continued growth increase share prices and so household wealth.

11. Real wealth decreases because of a rising price level.