Posted by Anika Bennett on Monday, July 2, 2007 at 12:17pm.
1. The three reasons for the downward slope of the aggregated demand curve are measured in effect. They are: Real Balances-this is caused by a change in the price levels. Next are Interest Rates-here high price levels increases the demand for money. When the supply is fixed the demand drives up the price. This price is the interest rate. Foreign Purchases-occur when the United States price levels increase relative to those overseas (and the exchange doesn't respond fast enough or completely), then the foreign markets buy more foreign goods. This reduces the number of US goods and creates a rise in exports.
2. The three major factors that can cause a shift in the aggregated supply curve are: Changes in Consumer Spending, which deals with price changes. Investment Spending is the plying of capital goods. Government Spending is the increase in it's purchases, a shift in the curve, as long as taxes and interest rates don't change as a result.
Hummmmmmm. What, exactly are the questions you are trying to answer.
In 1) I sense you are confused between aggregate demand for goods and services and aggregate demand for money. Demand curves are simply relationships between price and quantity. (The price of holding money is the interest rate). Demand curves are downward sloping because at higher prices, people want to hold/consume less.
In 2) changes in consumer spending changes the aggregate demand curve, not supply. Changes in investment spending, in the short run, are also changes to aggregate demand. Government spending is also a component of aggregate demand.
Factors that affect supply are levels of technology, levels of factors of production (labor, capital, natural resources), etc.
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