Name: ___________________ Class: _________________ Date: __________

Problem Set 3

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

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.