Explain the theory of liquidity preference. How does it help explain the downward slope of the aggregate-demand curve?

6 QUICK QUESTIONS – MUST BE 75 WORDS EACH

1. In your opinion, which two determinates currently have the greatest impact on aggregate demand and supply? Justify your response with an example.

2. Explain the three reasons the aggregate-demand curve slopes downward.

3. Identify two periods in recent history in which the United States has run budget surpluses. What were the reasons for the surpluses during those time periods?

4. Explain the theory of liquidity preference. How does it help explain the downward slope of the aggregate-demand curve?

5. Give an example of a government policy that acts as an automatic stabilizer. Explain why the policy has this effect.

6. Explain what is “natural” about the natural rate of unemployment. Why might the natural rate of unemployment differ across countries?

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