The Slope of Aggregate Demand and the Policy Effectiveness

Abstract

This paper presents two distinctive graphical methods of shifting aggregate demand curves for analyzing the impact of monetary and fiscal policies on real national income. (1) For fiscal policy (FP) the horizontal shifting method should be adopted when the interest rate is the cause producing different slopes of aggregate demand curve. On the other hand, when the real national income is the slope determinant, the aggregate demand curve (AD) should be moved vertically. (2) For monetary policy (MP) only the vertical shifting method should be taken for analyzing its effect no matter what causes AD to slope differently.

JEL Classification: A23