1. How does the interest rate effect explain the slope of the aggregate demand (AD) curve?

Name: ___________________ Class: _________________ Date: __________

Problem Set 3

2. How does the wealth effect explain the slope of the aggregate demand (AD) curve?

3. What is the difference between a movement along the aggregate demand (AD) curve and a shift of the aggregate demand curve? Explain in terms of what causes a movement and what causes a shift.

4. What happens to investment spending when the price level rises? Explain and illustrate using a loanable funds market graph.

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