Discuss Relationship between investment demand and interest rates – Business Economics
Aggregate demand management refers to the changing of policy variables like government expenditures, taxation (fiscal policy tools) or money supply and interest rates (monetary policy tools) to attain a target level of GDP. Therefore a change in G, or T by policymakers always shifts AD not AS, hence the name aggregate demand management. Here is your fourth question that has five sections. Utilize the internet to answer these questions. Briefly describe the following touching upon similarities and differences 1.) Classical school of thought (short run vs. long run) 2.) Keynesian school of thought (short run vs. long run) 3.) Adaptive expectations (backward looking, see what happens than react) vs. rational expectations (forward looking, if think something will happen for sure in the future, you react now and do not wait to see what happens, if you do it will be too late). In the latter does it matter whether a policy change is anticipated early or unanticipated? 4.) Monetarist (this would be the in between case where SAS curve is upward sloping). How do workers suffer from “money illusion” 5.) When the Federal Reserve increases the money supply unexpectedly, what is the impact on the price level and RGDP in the short run and long run? How do your conclusions change depending on the schools of thought listed above? 6.) Why is there an inverse relationship between investment demand and interest rates?
