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Discussion 6

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Q Economy A and Economy B are similar in every way except that in Economy A, 75 percent of aggregate expenditure is sensitive to changes in the real interest rate and in economy B, only 45 percent of aggregate expenditure is sensitive to changes in the real interest rate. compare Economy A and Economy B by responding to the following prompts: • Which economy will have a steeper aggregate expenditure curve? • How would the dynamic aggregate demand curves differ given that the monetary policy reaction curve is the same in both countries?

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Given the scenario, economy A and economy B appears to be similar more or less. The only difference lies between the two in terms of the aspect that in Economy A, about 75 percent of the aggregate expenditure remains sensitive to that of the changes in the real rate of interest while for Country B, about 45 percent of the aggregate expenditure remain sensitive to the changes in the rate of interest.