Explain how does a rise in real income affect aggregate demand?
What will be an ideal response?
A rise in domestic real income, Y, leads to a rise in disposable income, Yd. This raises the spending on imports, IM, thus lowering the current account, CA, and reducing aggregate demand, AD. However, the rise in Yd also causes a rise in consumption, C, and raises aggregate demand, AD, by more than the corresponding decrease.
Economics
You might also like to view...
A model's predictions are referred to as:
A) statistics. B) theories. C) hypotheses. D) empirical evidences.
Economics
As a result of establishing a legal minimum wage above the market clearing wage
A) there will be a shortage of workers. B) firms will hire fewer workers. C) firms will hire more workers. D) fewer workers will want to work.
Economics