Otherwise, Bernard McAlinden provides a good answer about the effect on supply of goods and services. The Government Multiplier. At a lower price level, exports are relatively more competitive than imports. Then, the aggregate demand curve would shift to the left. Aggregate demand increases when the components of aggregate demand–including consumption spending, investment spending, government … An increase in AD (shift to the right of the curve) could be caused by a variety of factors. Recall that as the price level falls the interest rate also tends to fall. a. decrease increasing b. increase decreasing c. decrease decreasing d. increase increasing e. increase maintaining Interest rates does not directly affect the aggregate money supply. 1. Suppose interest rates were to fall so that investors increased their investment spending; the aggregate demand curve would shift to the right. The third reason for the downward slope of the aggregate demand curve is Mundell-Fleming's exchange-rate effect. Thus, a drop in the price level decreases the interest rate, which increases the demand for investment and thereby increases aggregate demand. When interest rates are low, bond prices are high. The ‘natural rate of unemployment’ is the rate of unemployment at equilibrium, at this rate wages are in equilibrium, and aggregate demand and aggregate supply are also in balance. Shifts in the aggregate demand curve . Graph to show increase in AD. Like many economic variables in a reasonably free-market economy, interest rates are determined by the forces of supply and demand. Specifically, nominal interest rates, which is the monetary return on saving, is determined by the supply and demand of money in an economy. In a market economy, all prices, even prices for present money, are coordinated by supply and demand.Some individuals have a greater demand … However, the supply of bonds increases as bond prices increase and interest rates decrease. If the multiplier is 4, then a decrease in government spending of $10 million will result in a decrease in aggregate demand of $40 million, and the aggregate demand curve will shift left by $40 million. Because low-interest rates cause higher bond prices and result in a lower return on investment, the demand for bonds is lower. Contractionary monetary policy attempts to _____ aggregate demand by _____ interest rates. Since income taxes take money away from consumers, they tend to decrease aggregate demand. There is more than one interest rate in an economy and even more than one interest rate on government … Increased consumption: I assume you’re asking about the supply of money. 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