5D AD/AS model Macro Flashcards

1
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A
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1
Q

How will decreased interest rate affect AD

A

AD = C+I+G+ (X-M)
I increases :
decreased interest rate, fall in cost of borrowing for firms to finance investment spending

Previously lower expected return firms now profitable, more firms willing to invest, vol investment increases, I increases

Vol of investment (indpt) inversely related interest rate % (dpt)

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