曼昆经济学原理配套英文Chap32MonetaryFiscal.pptVIP

The Influence of Monetary and Fiscal Policy on Aggregate Demand Chapter 32 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. When desired spending changes, AD shifts. Monetary and Fiscal policy are used to offset those shifts in AD. How Monetary Policy Influences Aggregate Demand For the U.S. 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 economy’s interest rate. According to the theory, the interest rate adjusts to balance the supply and demand for money. Money Supply The money supply is controlled by the Fed through: Open-market operations Changing the reserve requirements Changing the discount rate Thus the quantity of money supplied does not depend on the interest rate and is vertical. Money Demand Money demand is determined by several factors. According to the theory of liquidity preference, one of the most important factors is the interest rate. People choose to hold money because money can be used to buy other goods and services. Money Demand The opportunity cost of holding money is the interest that could be earned on interest-earning assets. An increase in the interest rate raises the opportunity cost of holding money. As a result, the quantity of money demanded is reduced. Equilibrium in the Money Market According to the theory of liquidity preference: The interest rate adjusts to balance the supply and demand for money. There is one interest rate, called the equilibrium interest rate, at which the quantity of money demanded equals the quantity of money supplied. The price level is stuck at some level. Equilibrium in the Money Market... Changes in the Money Supply The Fed can shift the aggre