INTERNATIONAL BUSINESS

International business



International business

Effect on Aggregate Supply

Figure1 shows a typical demand and supply diagram. The price level is on the vertical axis, and real GNP is on the horizontal axis. The demand curve, D, summarizes the demand side of the economy. It slopes downward because a higher price level, other things equal, requires a higher interest rate to keep the demand for money in line with the given supply of money. The higher interest rate, in turn, causes interest sensitive spending and real output to decline. Furthermore, higher interest rates cause the Czech Crown to appreciate. The resulting decline ...