Read this article to learn about Derivation of Aggregate Demand Curve which is explained with diagrams! AD curve shows negative relationship between the price level and the income level (output). All variables of IS curve are real variables and therefore are not affected by the prices. However, when price changes e.g. falls, real money supply changes, that is, increases and [...]
Read this article to learn about the Aggregate Supply and Demand which is explained with the help of diagrams! 1. Reason, 2. Result, 3. Impact and 4. Conclusion! Short run equilibrium point → M (Fig. 18.18) Reason: Price level is fixed (P1) Due to lack of effective demand (AD), economy produces at less than full employment level (Y1) As [...]
Interest rate in small open economy is not only determined by the world interest rate but also by the risk factor and expectation of a change in the ER. Assume: 1. Domestic interest rate (r) is determined by: (a) World interest rate (r*), and, (b) risk premium (θ) 2. Risk premium (θ) is determined by: (a) Risk (b) expected change [...]