2020 Mock C 上午 42题
Assuming that there are no changes in the fiscal or trade balances, if investment expenditures become highly sensitive to interest rates, the aggregate demand curve is most likely to be:
- flatter.
- steeper.
- unaffected.
Solution
A is correct. Since there are no changes in the fiscal or trade balances, the balance between aggregate expenditure and aggregate income requires that changes in investment spending equal changes in private savings. Assume that interest rates fall: Investment will increase (by a larger amount, given the increased sensitivity to rates); savings will have to fall (this arises because there is less incentive to save, given the lower interest rate; consumption will increase; and national income will increase. The IS curve will be flatter the more sensitive investments are to interest rates. This means that income will have to move more to induce a large enough change in savings to match the change in investment spending, which implies a flatter aggregate demand curve.
